Terms were not disclosed.
Stein, who made $275,000 last year, was one of seven Royals who were eligible for arbitration. The club already has signed outfielder Raul Ibanez while righthander Paul Byrd was not tendered a contract and became a free agent.
The 28-year-old Stein was used as a starter and reliever last season, going 7-8 with one save and a 4.74 ERA in 36 games, including 15 starts. He walked 79 and struck out 113 in 131 innings.