The 39-year-old, 12-time NBA All-Star, who played for Golden State last season, will now spend his 20th season in Texas as he chases an elusive first championship ring.
Paul was used sparingly by the Warriors last year, making only 18 starts at an average of 11.9 points and 7.3 assists.
However, the likely future Hall of Famer provides crucial experience in a young squad that is being built around the talents of French prodigy Wembanyama under the guidance of veteran coach Gregg Popovich.
Paul is also an avowed admirer of Wembanyama, describing the towering 7ft 4in center as the player best placed to be the figurehead of the league in years to come.
"Wemby is different and he's the guy you're talking about after the game," Paul said. "Wemby is the guy that, after the game in the locker room we all were talking about playing against him. We literally all had to change how we shot a little bit."
The Warriors announced earlier Sunday they had waived Paul in a move to save luxury tax funds.
Golden State star guard Klay Thompson is now a free agent. The 13-year NBA veteran, every second of it played for the Warriors, is expected to have talks with Dallas, Philadelphia, the Clippers and the Los Angeles Lakers.
In other free agency news on Sunday, James Harden was reported to have reached a two-year deal to stay with the Los Angeles Clippers.
With teams unable to confirm new deals, media reports revealed most player moves in the opening hours of the scramble for clubs and talent to come to terms to reshape the landscape for the 2024-25 season.
The NBA moratorium period begins Monday and ends on Saturday.
Paul George, a former Clippers forward, was the biggest name in the available talent pool and his deal was expected to set the tone for more moves.
He was expected to have talks with Philadelphia and Orlando. Those clubs and Oklahoma City have the most salary cap space to offer deals to free agents.
Harden, according to multiple reports, reached a deal worth $70 million to spend the next two seasons with the Clippers.
Forward Kevin Love was expected to re-sign with Miami for $8 million over two seasons, The Athletic and ESPN reported, while ESPN reported center Obi Toppin was set to return to Indiana on a four-year deal worth $60 million.
Turkish center Omer Yertseven was set to be released by Utah, ESPN said.
Another free agent is Lakers star LeBron James, although he is expected to re-sign with the Lakers to play alongside son Bronny next season.
James reportedly has said he would take a pay cut if it would help the Lakers sign certain top free agents such as Thompson.
The NBA announced the salary cap for the 2024-25 campaign was set at $140.588 million with the tax level for the season at $170.814 million and the minimum team salary at $126.529 million.
