The Red Sox exercised the $12.5 million option on their designated hitter less than 12 hours before Thursday's midnight deadline.
The one-year deal "made the most sense," Epstein said.
Ortiz had been vocal about wanting a long-term extension and not a one-year deal, telling WEEI.com earlier this week that he would be "not comfortable" playing on a one-year contract because of the "roller coaster" season he just went through.
But Epstein said that he discussed the situation with Ortiz.
"He told me directly that he was cool with it," Epstein said.
That's a far cry from Ortiz's attitude at the All-Star festivities in Anaheim, Calif., in July.
"I'm going to tell you, I ain't going nowhere,'' Ortiz told ESPNBoston.com just before winning the home run derby.
"I don't want one year. Why should I return for one year and go through the same [stuff] I'm going through now, just because it's my last year? No. I like to be left alone when I'm playing baseball. I know how to clean my [stuff] up.''
The Red Sox could have picked up the option and then worked out a longer-term deal, but that does not appear to be the case in the short term. Epstein, however, said that you never say never. Ortiz appears to have made peace with the uncertain situation.
"He's happy now with the one-year solution," Epstein said. "I think in the end he realized we weren't in position to give him what he wanted."
Ortiz is coming off a season in which he hit .270 with 32 homers and 102 RBIs. He rebounded nicely after his second consecutive horrible start to the season, though he was clearly unhappy with those questioning whether his days as a productive hitter were over during his slump.
Along with Ortiz's option, the Red Sox announced Thursday their intention to exercise the 2011 option for right-handed reliever Scott Atchison (at just over the major league minimum) and to decline options on infielder/outfielder Bill Hall ($9.25 million) and infielder Felipe Lopez.
With the Red Sox declining his option, Hall gets a $500,000 buyout.
The Red Sox announced a trade as well. They acquired minor league infielder Brent Dlugach from the Tigers for a player to be named later or cash. At Triple-A Toledo, Dlugach hit .258 with six homers and 41 RBIs.
Gordon Edes covers the Red Sox for ESPNBoston.com.