Terms of the deal weren't announced, but he was expected to make the veteran's minimum of $1.7 million.
The four-time NBA all-star, now 38, has sat out the last two seasons after last playing for the Boston Celtics, where he averaged 9.0 points, 4.1 rebounds and 1.0 assists in 79 games (13 starts) in 2009-10.
Wallace holds career averages of 14.6 points, 6.7 rebounds, 1.8 assists and 1.3 blocks in 1,088 games over 15 seasons with Washington, Portland, Atlanta, Detroit and Boston.
He won an NBA Championship with Detroit in 2004. One of the assistant coaches on that team was Mike Woodson, now the Knicks' head coach.