The deal includes a player option for the second year, sources said.
Dunn is joining the Hawks after the Chicago Bulls somewhat surprisingly did not extend a qualifying offer, making him an unrestricted free agent.
Drafted fifth overall in the 2016 NBA draft by the Minnesota Timberwolves, Dunn, 26, was shipped off to Chicago a year later as part of the Jimmy Butler trade. After a couple of promising seasons with the Bulls, Dunn saw his minutes cut drastically last year to make room for rookie point guard Coby White in the rotation.
A defensive specialist, Dunn led the league in steal percentage last season. Opponents' possessions ended with a steal 3.8% of the time when Dunn was on the court, with the point guard accounting for 2 per game in 24.9 minutes of action.
Offense, however, has been a struggle for Dunn. He shot just under 26% from 3 last season after making steady progress in that area the two seasons prior. He was far less effective as a passer as well, averaging 3.4 assists after racking up 6 per game in 2017-18 and 2018-19.