Green will earn $6 million in 2012-13 and 2013-14 and $6.25 million in 2014-15.
The 26-year-old recorded three goals and four assists for seven points, along with a plus-five rating, in 32 games with the Capitals last season.
The Calgary, Alberta, native has collected 251 points (82 goals, 169 assists) and a plus-62 rating in 398 career NHL games, all with Washington. Green was originally drafted by Washington in the first round (29th overall) of the 2004 NHL Entry Draft.