The Yankees will extend a Spring Training invitation to Diaz, who turns 35 in March and had his 2012 season with the Braves cut short due to injury.
The New York Daily News first reported the Yankees' agreement with Diaz, who would earn $1.2 million plus $800,000 in possible incentives if he makes the club, according to reports.
"I'm very excited and thankful to be goin[g] to camp with the Yankees!" Diaz tweeted Wednesday. "This little boy's dream come true!!!!"
Diaz is a career .291 hitter in 10 seasons with the Rays, Royals, Braves and Pirates. Because of a right thumb injury that required season-ending surgery in August, Diaz played in just 51 games for Atlanta in 2012, batting .222 with two home runs and 13 RBIs.
Yankees general manager Brian Cashman has said that the club is looking for a right-handed-hitting outfielder to serve in the role that Andruw Jones had filled over the last two seasons.
New York currently has an all left-handed-hitting outfield -- Brett Gardner, Curtis Granderson and Ichiro Suzuki -- and had no interest in retaining Nick Swisher, who inked a four-year deal with the Indians.
The Yankees are believed to have shown a level of interest in free-agent outfielder Scott Hairston as well, but the right-handed-hitting option reportedly is seeking at least a two-year deal, something the club has been reluctant to offer.