Casilla, 29, batted .214/.268/.295 with four doubles, a triple, one homer and 10 RBIs in 62 games last season. He also was 9-for-11 in stolen base attempts.
Casilla made $1.7 million last season. The Orioles declined his $3 million option for 2014, but brought him back after second baseman Brian Roberts agreed to terms on a $2 million contract with the Yankees.
"Alexi is a skilled player," said executive vice president Dan Duquette. "He's a good defender. He's very good at second base and he's good at short. He's a switch-hitter and he's a talented basestealer. And he brings a lot of energy to the team. And he understands his role."
Casilla could compete for the starting job at second base or serve in a utility role with his ability to also play shortstop and third base. Ryan Flaherty and Jemile Weeks also are candidates to start at second.
"Alexi Casilla is a qualified and skilled major league player, and he's ready to play when he comes to the ballpark," Duquette said. "He's solid. He gives us another infielder and he has major league experience. Plus, he fits in on our ballclub. He knows the organization.
"He gives us another qualified major league infielder. That's what he is."
Casilla has 80 steals in 91 attempts during his eight-year career, the first seven spent with the Twins. The Orioles recently signed outfielder Quintin Berry, who's 29-for-29 in stolen base attempts, including the playoffs.
Casilla didn't play last season after a Sept. 23 collision with right fielder Nick Markakis at Tropicana Field - the same day that Manny Machado left on a stretcher after injuring his knee. Casilla's head slammed into Markakis' leg as he dived for a Will Myers' shallow fly ball, and he also jammed his thumb.