Matthews spent the past three-and-a-half seasons with the Dallas Mavericks before being dealt to the Knicks as part of the Kristaps Porzingis trade on January 31.
"We're excited to welcome Wesley to the Pacers", said the team's president of basketball operations, Kevin Pritchard, when IN officially signed Matthews.
After being traded to New York, Matthews and the Knicks agreed to a contract buyout that made him a free agent Thursday.
Terms of the deal were not announced. He was in the final season of the four-year, $64 million deal he signed with Dallas in July 2015. He's a career 38.2 percent 3-point shooter and is tenacious on the defensive end, earning a reputation as a prototypical role player on the wing.