The 29-year-old, 6-foot-7 Marshall was 6-6 with a 2.26 ERA last season. He had five saves. The Reds have been in talks to try to re-sign closer Francisco Cordero, who became a free agent after last season.
"Sean has been one of the best and most durable relievers in baseball the last couple of seasons," Reds general manager Walt Jocketty said in a statement.
The 24-year-old Wood made 35 starts for the Reds over two seasons. He finished 6-6 with a 4.84 ERA in 2011, with a stint in Triple-A after struggling early in the year.
The Cubs also get 24-year-old outfielder Dave Sappelt, who batted .243 in 38 games with the Reds, and 19-year-old infield prospect Ronald Torreyes, who batted .356 in 67 games for Class-A Dayton.
"Twenty-four-year old left-handed starters who have already had success in the big leagues don't grow on trees," Cubs president of baseball operations Theo Epstein said. "We had to give up a great relief pitcher in Sean Marshall and someone we were proud to call a Cub, but we think to acquire Wood and the two young guys, it was worth doing."
Wood made 17 starts for the Reds in 2010, going 5-4 with a 3.51 ERA. He took a perfect game into the ninth inning against the Philadelphia Phillies before giving up a double to Carlos Ruiz, and left after finishing the ninth with the game scoreless.
Wood began last season in the Reds' starting rotation, made 10 starts for Louisville, then returned to Cincinnati. He also had four relief appearances for Cincinnati.
"He had a little bit of a down year last year, a little bit of a sophomore slump, but we still think all the ingredients are there to make him an excellent starting pitcher in the big leagues and you tend to not be able to get guys like that after their strong rookie years," Epstein said. "But sometimes you have a chance to get them after they take a little bit of their lumps on the learning curve."
Wood said he relied too heavily on his cutter last season and "lost the ability to really stick that four-seam (fastball) in there." His control was off, but he also sees a shot at redemption in Chicago.
"I think it's a great opportunity for me," he said. "The Reds do have a lot of depth in their rotation. ... Hopefully, I can get to Chicago and make a difference."
Besides the addition of Latos, the Reds return starting pitchers Johnny Cueto, Mike Leake, Homer Bailey and Bronson Arroyo. Aroldis Chapman, a left-handed reliever in his first two seasons, is also a possible starter next season.
In another move, Cincinnati claimed reliever Josh Judy off waivers from Cleveland. The 25-year-old right-hander pitched in 12 games over four stints with the Indians last season, with no record and a 7.70 ERA. He was 6-2 with a 3.12 ERA and 23 saves at Triple-A Columbus.
Epstein said the Cubs could still use some more starting pitchers in their farm system and at the major league level. He also said they're weighing ace Matt Garza's trade value versus locking him into a long-term deal. The right-hander was tendered a contract last week and is eligible for arbitration.
"It's hard to find top-of-the-rotation-type guys, so if you have them and there's a way to keep them around, I think that's always compelling for the club," Epstein said. "Now, that said, we're in a mode where we have to listen on everybody. If there's a way to improve the long-term outlook for this club in a significant manner, then we just can't look past opportunities like that. We're not in a situation where we have to do anything with Garza, but generally, we're in the business right now of taking our short-term assets and turning them into long-term assets."
AP sports writer Andrew Seligman in Chicago contributed to this report.