The Kings have the "framework of an agreement going forward" to stay in Sacramento, mayor Kevin Johnson announced Monday.
"Today is a new day for Sacramento and a defining moment for our community," Johnson said, flanked by NBA commissioner David Stern and members of the Maloof family, which owns the team.
"We came to Orlando needing to convert both ends of a one-and-one free throw. Over the weekend, the city hit the front end of the free throw by making clear it had delivered on its promises and, today, the Maloof family hit the second free throw by stepping up and increasing their contribution."
The estimated 387 million arena, which would open for the 2015-16 season in the downtown Sacramento rail yards, is now within reach.
Said team owner Joe Maloof: "It's a great day for Sacramento...Our family is just so excited."
The deal was first reported by Rob McAllister of KFBK 1530 in Sacramento and confirmed by Sam Amick of Sports Illustrated.
The city of Sacramento was facing a Thursday deadline from the NBA to strike a deal with the Maloofs for funding to build a 400-million arena in order to meet the NBA's relocation deadline.
The city of Sacramento needs to have a deal with the Maloofs, who own the Kings, to fund the construction of a 400-million arena by Thursday in order to meet the NBA's relocation deadline.
The Kings almost moved to Anaheim last year before Johnson and city leaders convinced the league to give Sacramento one last chance to help finance an arena. Seattle also had been making a renewed push for an NBA team.
The Associated Press contributed to this report.