The Bengals icon was scheduled to be a free agent when the new league year begins on Wednesday but will now move into a 10th season with the team.
Green, 31, will earn around $18million in 2020 if he opts to sign the tag, with the team having until July 15 to negotiate a long-term deal before the new season.
Amid a stellar career that has seen him earn seven Pro Bowl selections, the wide receiver sits second in Bengals history when it comes to receptions (602), receiving yards (8,907) and receiving touchdowns (63).
Green has been the subject of trade rumours after missing all of last season due to an ankle injury suffered in training camp, having only played nine games in 2018, with the team struggling in his absence.
But the franchise tag means Green remains under the control of the Bengals, who hold the number one overall pick in April's NFL Draft which they are expected to use on LSU quarterback Joe Burrow.
"A.J. has been a big part of this team for a long time," Bengals head coach Zac Taylor said after the franchise tag decision was announced on Monday.
"Now that he's healthy, I am excited to see what he will add to our offense this year."
With the legal tampering period for NFL free agents beginning on Monday, teams have been making key roster moves.
The Arizona Cardinals opted to hand the transition tag to running back Kenyan Drake, who they acquired in a trade with the Miami Dolphins last season.
Drake will initially be contracted for one year at around $8.4m but is free to negotiate with other teams. If he signs an offer sheet elsewhere, the Cardinals will have the opportunity to match the deal under the terms of the tag.
Meanwhile, the New England Patriots are reportedly applying the franchise tag to guard Joe Thuney at an estimated cost of $14m.
Thuney had looked poised to become one of the top offensive linemen hitting the open market but will now stay in New England, where the future of QB Tom Brady is dominating the agenda.
Tagged by the Bengals back in March, the seven-time Pro Bowler had been seeking a multi-year contract to stay in Cincinnati. The two sides did not work out a deal prior to Wednesday's deadline, however, and Green had said he would honour the tag and report to camp.
"A.J. is one of the best receivers in the NFL," Bengals coach Zac Taylor said in a statement. "He's an important part of our plans, and we're thrilled to have him in the fold from day one. We're looking forward to the impact of his talent and leadership on our offense this season."
After tearing his left ankle in the first practice of training camp a year ago and missing all of the 2019 season, the soon-to-be 32-year-old will be suiting up for a ninth season with the Bengals – and first without Andy Dalton.
The fully healed Green will now be teaming up with number one pick Joe Burrow, so arriving at camp on time will be paramount for the two to develop chemistry after Green had worked for so long with a different quarterback.
Since Green’s rookie season in 2011, only two quarterback-wide receiver tandems have totalled more pass completions than Dalton’s 581 to Green – the Pittsburgh Steelers' Ben Roethlisberger and Antonio Brown (783) and the Atlanta Falcons' Matt Ryan and Julio Jones (782) – and that is with Green missing all of last season.
"By signing, A.J. puts himself and the team in the best position to have a great season together, and we look forward to the opportunity at the end of the season to discuss keeping him here long-term," Bengals executive vice president Katie Blackburn said.
"He has been an integral part of our team, and we expect this year that he will be the same impact player he has always been."
Green has said before he would like to finish his career in Cincinnati, and only Chad Johnson ranks ahead of him in Bengals franchise history in receiving yards (8,907), receptions (602) and touchdown catches (63).
Prescott had already signed his tender offer and will earn approximately $31.4million for the upcoming season before becoming an unrestricted free agent, unless the Cowboys opt to again place the franchise tag on him - a move that would count over $37m towards the 2021 salary cap.
The two-time Pro Bowl selection is one of 10 players who have signed their franchise tenders but were unable to come to terms on multi-year contracts with their respective teams. Two others, Jacksonville Jaguars defensive end Yannick Ngakoue and Cincinnati Bengals wide receiver A.J. Green, have yet to sign their offers.
The Tennessee Titans were able to agree to a reported four-year, $50m contract with 2019 NFL rushing champion Derrick Henry just prior to the deadline, while the defending Super Bowl champion Kansas City Chiefs locked up defensive lineman Chris Jones with a four-year, $85 million deal on Tuesday.
Along with Prescott, Tampa Bay Buccaneers pass rusher Shaq Barrett, Pittsburgh Steelers outside linebacker Bud Dupree, Minnesota Vikings safety Anthony Harris, Los Angeles Chargers tight end Hunter Henry, Baltimore Ravens pass rusher Matthew Judon, Washington guard Brandon Scherff, Denver Broncos safety Justin Simmons, New England Patriots guard Joe Thuney and New York Giants defensive lineman Leonard Williams will play under the franchise tag in 2020.
Ngakoue has publicly declared his intention to no longer play for the Jaguars and has requested a trade, though the team has yet to find a suitable offer for the standout edge rusher.
NFL.com reported on Tuesday that Prescott had turned down a multi-year offer from the Cowboys that would pay him between $33 and $35m annually and included over $100m in guaranteed money.
The soon-to-be 27-year-old is coming off a stellar 2019 season in which he established career highs of 4,902 passing yards and 30 touchdown passes while directing the NFL's top-ranked offense in terms of total yards per game.
Negotiations between the Cowboys and Prescott were likely impacted by the recent 10-year, $450m extension the Chiefs gave to 2018 NFL MVP Patrick Mahomes that reset the top end of the quarterback pay scale.
Judon is currently slated to earn the second-highest salary among the group unable to land multi-year deals after he and the Ravens agreed to a $16.808m offer, a compromise between the tender rate for a defensive end and linebacker. Barrett, Dupree and Williams have filed grievances arguing they should be designated as defensive ends, which carries a higher tender value than linebackers or defensive tackles.
The 34-year-old took to social media to announce the decision to retire on Monday.
"Thank you to all who have supported, encouraged and inspired me throughout my career," he wrote on Twitter. "Special thank you to the University of Georgia, Cincinnati Bengals and Arizona Cardinals for the opportunity to pursue my dreams.
"I've stayed true to the game and it owes me nothing. Be blessed.. Love y'all! The next chapter begins."
Green was drafted fourth overall in 2011 by the Bengals and earned his first of seven consecutive Pro Bowl selections that season after leading the team with 65 receptions, 1,057 yards and seven touchdowns.
His best season came in 2013, when he had career highs of 98 receptions for 1,426 yards and 11 TDs.
After 10 seasons with the Bengals, Green signed as a free agent with Arizona, where he spent the final two seasons.
He ranks second all-time in Cincinnati franchise history in career receptions, receiving yards and receiving touchdowns and ends his career with 727 receptions for 10,514 yards and 70 touchdowns in 158 games.
