The Angels persuaded the free-agent outfielder to leave the Texas Rangers with their third big-money off-season signing in as many years. Hamilton heads to Anaheim after first baseman Albert Pujols came West for $240 million last December along with pitcher C.J. Wilson — Hamilton's Texas teammate — for $77.5 million.
Still, the Angels failed to make the playoffs for the third straight year.
They had bulked up their pitching staff earlier in the off-season with the additions of pitchers Joe Blanton and Tommy Hanson, along with relievers Sean Burnett and Ryan Madson.
General manager Jerry Dipoto had said Wednesday that he didn't think a major move was "imminent or required."
But owner Arte Moreno pulled off another coup by getting Hamilton. The 2010 AL MVP, Pujols and AL Rookie of the Year Mike Trout combined for 103 home runs and 316 RBIs last season.
"It's a great day to be an Angel/Angel fan!" Wilson said on his Twitter account.
Rangers general manager Jon Daniels said Hamilton had reached a deal with the AL West rival Angels. Two people familiar with the talks disclosed the amount and length of the contract, speaking on condition of anonymity because the agreement was not yet final.
Hamilton's $25 million average salary matches Philadelphia first baseman Ryan Howard for the second-highest in baseball, trailing only Alex Rodriguez's $27.5 million average with the New York Yankees.
Since the contract wasn't final, the Angels didn't comment publicly. The team said in a statement, "We continue to look for ways to improve our team. As soon as we have something formal to announce, we will do so."
Moreno and manager Mike Scioscia didn't immediately respond to phone messages.
The Angels allowed free agent outfielder Torii Hunter to sign with Detroit, and he reacted to his former team's latest move on his Twitter account.
"I was told money was tight but I guess the Arte had money hidden under a Mattress. Business is business but don't lie," Hunter wrote.
He followed up with the comment, "Great signing for the Angels. One of the best players in baseball."
Texas had hoped to re-sign Hamilton, who led the Rangers to consecutive World Series appearances in 2010 and 2011. They made a $13.3 million qualifying offer at the Nov. 2 deadline, ensuring the team draft-pick compensation if Hamilton signed elsewhere. The Rangers will receive an extra selection immediately following the first round of June's amateur draft. The deal cost the Angels a first-round selection in the draft.
Speaking Thursday after a Rangers' holiday luncheon, Daniels said he had just been informed of the decision by Hamilton's agent, Michael Moye.
Daniels said he was disappointed "to some degree," especially since the Rangers never got a chance to match any offer during the process, as they had expected. Or at least get contacted before Hamilton agreed with another team.
"I never expected that he was going to tell us to the dollar what they had, and a chance to offer it. Our full expectation, the phone call was going to be before he signed, and certainly not after," Daniels said. "Everybody's got to make their own calls.
"He's a tremendous talent and I think that they've shown they're going to be in on a lot of the best players out there. No sugarcoating it, we wanted the player back. And he signed with the Angels. They're better," Daniels said.
The agreement came days after the Los Angeles Dodgers added pitchers Zack Greinke and Ryu Hyun-jin, boosting their payroll over $200 million. Greinke, another off-season target, said he chose the Dodgers over the Rangers.
Hamilton's addition to the Angels outfield means Mark Trumbo could be moved to third base or traded. Peter Bourjos and Vernon Wells also are among the outfielders competing for time unless a trade is made.
Scioscia will have an interesting decision to make on where in the batting order to slot in Pujols, Trout and Hamilton, a five-time All-Star. He has a .260 career average at Angel Stadium with five home runs and 19 RBIs in 150 at-bats.
Daniels met with Moye last week at the winter meetings in Nashville, Tenn., and had talked about the parameters of a new contract along with numbers. While Daniels wouldn't get into any specifics, he said his understanding is the deal with the Angels "is certainly more guaranteed money."
The move keeps Hamilton in the same division with plenty of opportunities to play against his team — the first one coming fast next season. After the Rangers open with three games at new division foe Houston, they play their first home series April 5-7 against the Angels.
The 31-year-old slugger was considered a risk by some teams because of his history of alcohol and substance abuse, which derailed his career before his surge with the Rangers over the past five seasons.
"Josh has done a lot for the organization, the organization has done a lot for Josh, a lot of things that aren't public and things of that nature," Daniels said. "I'm a little disappointed how it was handled, but he had a decision to make and he made it."
Hamilton had a career-high 43 home runs with 128 RBIs in 148 games last season, when the Rangers struggled down the stretch and lost the division to Oakland on the final day of the regular season.
Texas then lost in the winner-take-all wild-card game against Baltimore, and Hamilton was lustily booed by Rangers fans while going 0-for-4 — twice striking out on three pitches, including an inning-ending out in the eighth with a runner in scoring position when it was still a 3-1 game.
That came two days after Hamilton dropped a routine popup in the regular-season finale, a two-out tiebreaking miscue that allowed the A's to score two runs and go ahead to stay. He missed five games on a September trip because of a cornea problem he said was caused by too much caffeine and energy drinks — and had one homer with 18 strikeouts in the final 10 regular-season games after returning.
Hamilton hit .304 with 161 homers in his six major league seasons, the first with Cincinnati. In May against Baltimore, he became only the 16th major league with a four-homer game as part of a 5-for-5 night that included a double.
"Josh had indicated recently ... told us that he felt it might be time to move on, but that we were still talking," said Daniels, who wouldn't elaborate on the reasons. "We had additional conversations this week that I thought had moved it along in a positive direction, but apparently not."
AP Sports Writers Stephen Hawkins in Fort Worth, Texas, and Ronald Blum in New York contributed to this report.