The deal, which avoided salary arbitration, includes $50,000 in performance bonuses: $25,000 each for 24 and 28 starts.
Cincinnati offered a multiyear deal to Volquez, who returned from reconstructive elbow surgery last season.
The 27-year-old returned from elbow surgery last August and went 4-3 with a 4.31 ERA in 12 starts, getting better as he went along. He made $445,000.
Volquez was the last Reds player in arbitration.