The Chicago Sun-Times said the team struck a deal with Garza worth $7.95 million, which is $2 million more than he made last season.
Garza was 10-10 in 31 starts for the Cubs after being a centerpiece of an eight-player trade with Tampa Bay. He led the Cubbies with 197 strikeouts and finished with a 3.32. ERA.
"He's a top-of-the-rotation-type starter," said Cubs General Manager Theo Epstein. "He has proven it in the American League East and he proved it here last year in the National League Central."
The newspaper said the deal kept alive Epstein's streak of never going to arbitration with a player. Garza will be eligible for arbitration next season but won't be able to turn free agent until after the 2013 campaign.