While terms were not disclosed, it is a four-year, $44 million deal, according to multiple reports.
Sanders, 24, averaged 9.8 points and 9.5 rebounds in 71 games last season while also finishing second in the NBA with an average of 2.8 blocks per game.
Entering his fourth season out of VCU, Sanders is considered an integral part of the Bucks' rebuilding process after they parted with Brandon Jennings and Monta Ellis over the offseason.
Sanders averaged 27.3 minutes per game last season, more than double what he averaged in 2011-12. He also averaged 10.8 points and 8.3 rebounds in Milwaukee's four playoff games.
The Cleveland Cavaliers signed 2013 draft picks Anthony Bennett, Sergey Karasev and Carrick Felix to contracts, the team announced Tuesday.
Terms of their deals were not released.
The 6-foot-8, 240-pound Bennett, a Canadian, was the first overall pick in the draft in June.
He averaged 16.1 points and 8.1 rebounds per game in his only season at UNLV in 2012-13 and was a dominant force in the Mountain West Conference. He suffered a rotator cuff injury to his left shoulder at the end of the season and underwent surgery.
The Detroit Pistons recently worked out Jason Collins, but have decided not to sign the veteran center, according to Sports Illustrated.
SI published a co-authored essay by Collins in April in which he became the first male athlete in one of the four major North American sports to announce he is gay. The Pistons have one spot remaining for a guaranteed contract on their 15-player roster.
Collins, 34, signed a one-year deal with the Boston Celtics last August and averaged 1.1 points and 1.6 rebounds in 32 games. He also appeared in six games for the Washington Wizards last season.