The Knicks hope the five-time All-Star, who has played 13 seasons in the NBA, will join Amar'e Stoudemire and Carmelo Anthony in boosting a team that was eliminated from the first round of the playoffs by the Boston Celtics on Sunday.
He and Anthony were acquired by the Knicks from Denver in February.
"Chauncey, Amar'e and Carmelo are a great nucleus, as we continue to look to improve our team going into the offseason," Knicks president Donnie Walsh said in a statement.
Billups, 34, averaged 17.5 points and 5.5 assists in 21 games with the Knicks during 2010-11 regular season.
(Reporting by Gene Cherry in Salvo, North Carolina; Editing by Frank Pingue)