"To say that we have added a player that can impact the game is an understatement. I am truly thankful," Texans general manager Rick Smith said. "It is truly a great day for our franchise."
NFL.com's Albert Breer cited a source involved in negotiations in adding that the contract will pay Reed $6 million the first year.
John McClain of the Houston Chronicle reported earlier that Reed arrived at the Houston airport late Thursday to sign the contract Friday morning.
"We play all of the top quarterbacks in the league, and we needed a free safety back there that had some outstanding ball skills," McNair said.
Reed leads all active players with 61 career interceptions. He joins Paul Kruger, Cary Williams, Bernard Pollard, Dannell Ellerbe and the retired Ray Lewis as key members of the Ravens defense who won't return to Baltimore in 2013.