The deal is worth up to $13 million if Parker hits every incentive included in the contract, a league source told ESPN's Adam Schefter.
The new deal wipes away the fifth-year option worth $9.4 million that would have been guaranteed if Parker was still on the roster Wednesday and replaces it with a two-year deal with lower base salaries.
The Dolphins exercised their fifth-year option on Parker last April in hopes that the player would realize the potential that got him drafted 14th overall in the 2015 draft out of Louisville.
Parker's bouts with injuries and inconsistency prevented him from becoming that player, but the new regime still wants to invest in Parker at a lower cost.
Parker's best season came in 2016 when he finished second on the Dolphins with 744 receiving yards on 56 catches and four touchdowns. He had 24 catches for 309 yards and a touchdown in 11 games last season.
Parker, a 6-foot-3, 220-pound receiver, has the ability to take over games.
In 2018, Parker seemed to find himself in Adam Gase's doghouse at times. Parker's agent, Jimmy Gould, made headlines around midseason by calling Gase "incompetent" in statements to the media.
But it's a new era in Miami under head coach Brian Flores and general manager Chris Grier. They want to see if Parker, 26, can reignite his career.