The Rockets, who finished with the best record in the Western Conference a season ago, will acquire shooting guard Iman Shumpert from the Kings and guards Wade Baldwin and Nik Stauskas from the Cavs.
And the Kings receive shooting guard Alec Burks and a second-round pick from the Cavs.
Cavaliers have agreed to a three-way trade with the Houston Rockets and Sacramento Kings that will deliver point guard Brandon Knight, forward Marquese Chriss and a first-round draft pick to the Cavs, and shooting guard Iman Shumpert to the Rockets.
Stauskas and Baldwin were acquired by the Cavs from the Portland Trail Blazers in a deal for swingman Rodney Hood two days ago.
The parameters of the deal were first reported by The Athletic.
The Rockets' pick for the Cavs will be conveyed in the June draft and is lottery (top-14) protected, ESPN reported. The Rockets currently hold the No. 21 pick, so the Cavs appear in little danger of losing it.
The Cavs have acquired two first-round picks and six second-rounders in trades this season.
Houston and Cleveland came close to a deal centered on Shumpert two years ago, but Shumpert's contract was deemed too large at the time.
But the contracts of everyone involved in this trade, sans Knight, are expiring at the end of the season.
The Cavs acquired Burks and two second-round picks from the Utah Jazz for Kyle Korver in late November. Burks is 6-foot-6 and averaging 11.5 points and career-highs of 5.5 rebounds and 4.8 assists in 33 games with the Cavs.
Meanwhile, the Rockets have been offering their first-round pick for any team willing to take on Knight's contract ($14.6 million this season, $15.6 million next).
The Rockets have been looking for some added scoring punch off the bench, and that is clearly something Shumpert would be capable of providing. He was having a strong season with the Kings, as a veteran who offered perimeter defense and led the younger players.
Knight, 27, missed all of last season with the Phoenix Suns with a severe knee injury. He was traded to the Rockets in the summer and has appeared in just 12 games. Some around the league are wondering if he will be the same after being forced to sit out for an entire year.
The Cavs could look to reach a contract buyout with Knight, but right now, that's speculation. It seems they intend to give him a chance first.