The third year is a team option.
Mozgov was said to be on the trading block for most of last season, but was kept because the Nuggets traded Kosta Koufos this offseason, opening the backup center position to Mozgov.
The 7-foot-1 center came to Denver as a key part of the Carmelo Anthony trade after showing a lot of promise with the Knicks as a rookie.
With George Karl in his first season with the Nuggets he was a useful big, averaging 5.4 points and 4.1 rebounds in 15.6 minutes a game. But last season he found himself on the end of the bench behind Koufos and used only sparingly.
Mozgov, 27, averaged 2.6 points and 2.6 rebounds last season in only 41 appearances.