Nick Minnerath was also waived from the team.
The deal is reportedly for 5 years and worth $82 million dollars, but the Cavaliers will not release that information.
Cavaliers' owner Dan Gilbert confirmed that an agreement had been reached during a private Cavaliers event held on Wednesday night.
Last season for the Cavaliers, Thompson, 24, played in 82 games, starting 15 of them.
He averaged 8.5 points, 8 rebounds and .5 assists per game.
The Cavaliers regular season begins next Tuesday when they travel to Chicago to take on the Bulls.
Thompson posted on his Instagram account shortly after the news broke.