Peterson 32, will sign a two-year contract worth approximately $6.5 million, league sources confirmed. Peterson visited with team officials and coaches on Monday and Tuesday.
The contract reunites Peterson, a 10-year veteran, with Atlanta coach Mike Smith, who served as Peterson's defensive coordinator with the Jacksonville Jaguars. It also provides the Falcons a versatile veteran, who should compete for one of the outside linebacker spots.
"I had the pleasure of coaching Mike for five seasons in Jacksonville," Smith said. "He is a passionate player who brings a great deal of intensity to the game."
Peterson said he was excited to be reunited with Smith.
"This is definitely a place that I wanted to be," Peterson told the Atlanta Journal-Constitution. "I know what's expected from coach Smith. That was a big factor in me signing with the Falcons."
Peterson began his career at outside linebacker, playing there for four seasons for the Indianapolis Colts. When he signed with Jacksonville as a free agent in 2003, he shifted to middle linebacker, where he has started ever since, even though he was considered undersized.
"Mike is a very sound, versatile linebacker who has gained plenty of experience and knowledge over his 10-year career," Falcons general manager Thomas Dimitroff said. "He is the type of player who will lead the team on the field and in the locker room."
The Falcons have a starting middle linebacker they like in second-year veteran Curtis Lofton, who is coming off a strong rookie campaign.
But the team lost outside linebackers Keith Brooking (Dallas) and Michael Boley (New York Giants) in free agency. The Falcons' only current outside 'backer with much experience is Coy Wire, a part-time starter who replaced Boley in the lineup for the second half of 2008.
Last season, Peterson fell out of favor with Jacksonville coach Jack Del Rio, and the Jaguars did not attempt to retain him in free agency.
Peterson shrugged off his bitter split with Del Rio.
"I'm just ready to put that behind me," Peterson said. "I think it was blown out of proportion. It was just two guys who wanted to win. To me, that's history and I'm looking forward to my time here in Atlanta."
Peterson, who played at Florida, was a second-round choice of the Colts in 1999. For his career, Peterson has played in 137 games, with 127 starts. He has 745 tackles with a high of 137 tackles in 2002, and he registered 100 or more tackles in four straight seasons (2002-2005).
Peterson also has 19½ sacks, 15 interceptions and 22 passes defended.
Len Pasquarelli is a senior NFL writer for ESPN.com. Information from The Associated Press was used in this report.