Hood was looking for a longer contract throughout the summer but couldn't come to terms with the Cavs, who made a multiyear offer. In a tight market for restricted free agents, he was unable to find a satisfactory offer sheet with another team.
He will now re-enter the free-agency market next summer and will retain the ability to void any trade during the upcoming season under league rules.
Hood, 25, struggled after being traded to the Cavs last February, averaging just 10.8 points in 21 games after averaging 16.8 in 39 games with the Utah Jazz. In the postseason he fell out of coach Tyronn Lue's rotation as he averaged just 5.4 points and shot just 17 percent from 3-point range.
It frustrated Hood, who at one point declined to enter a lopsided playoff game. He later apologized to his teammates. He did get some playing time during the NBA Finals, rebounding to average 12.5 points in two games off the bench.
With Hood officially back, he is expected to be a candidate to replace the departed LeBron James at the starting power forward spot.