The 34-year-old became a free agent following Sunderland's relegation from the Premier League last season and was heavily linked with a return to Bournemouth, where he spent a spell on loan earlier in his career.
The deal had been thought to be on the rocks due to Defoe's financial demands, with the England international reportedly asking for an £8m signing-on fee and £80,000-a-week wages over three years.
However, PA reports that the two parties have now agreed terms and that the transfer has gone through.
The move has not been officially confirmed by Bournemouth yet, but that is expected in the near future.
Defoe scored 19 goals in 31 appearances for Bournemouth back in 2000-01.