Indianapolis will receive a fifth-round compensatory draft pick, according to multiple media reports.
The 32-year-old Gilmore will play for his fourth team in four years, joining a secondary that already features Trevon Diggs, whose 14 interceptions over the last two seasons are the most in the NFL.
Gilmore signed a two-year contract with the Colts last year, and unloading him clears an estimated $9million in salary cap room for Indianapolis.
The Cowboys add the 2019 Defensive Player of the Year to a unit that ranked fifth in points allowed per game last season at 20.1.
Reports of the trade came after Dallas announced that starting safety and 2022 leading tackler Donovan Wilson re-signed for three years and $24m.
Gilmore played his first five seasons with the Buffalo Bills before joining the New England Patriots in 2017. The former second-round pick enjoyed his best years with New England, being named to the All-Pro First Team in 2018 and 2019.
He started just three games for the Carolina Panthers in 2021 but had a bounce-back season last year with the Colts. In 2022, Gilmore started 16 games and tallied 66 total tackles, two interceptions and 11 pass breakups.
Gilmore’s 29 career interceptions are tied for the fifth-most among active players.
In an ugly offensive showing, the teams combined for 12 punts, six fumbles and four interceptions, heading into halftime with a 6-3 Broncos lead thanks to a pair of Brandon McManus field goals.
The Broncos had a chance to run out the clock and ice the game, but instead called a pass play, with quarterback Russell Wilson throwing his second interception of the game to keep the Colts alive.
They would march down the field for a Chase McLaughlin field goal with five seconds remaining in regulation to tie the game at 9-9 and force overtime, and he would kick his fourth field goal of the night in overtime to take the lead.
Needing a field goal to extend the game or a touchdown to win it, the Broncos finally mounted a strong drive with long completions to Melvin Gordon and Jerry Jeudy to move into the redzone. When presented with a fourth-and-one on the five-yard line, they went for it instead of kicking another field goal to tie, and failed to convert a pass into the endzone.
It was a miserable day for both quarterbacks as their offensive lines struggled to keep them upright, with the Broncos sacking Matt Ryan six times while Wilson absorbed four sacks of his own. Ryan finished up completing 26 of 41 passes for 251 yards and two interceptions, while Wilson completed 21 of 39 for 274 yards and two interceptions.
Defensively, Caden Sterns had both interceptions for the Broncos, while teammate Bradley Chubb had two-and-a-half sacks, but Colts cornerback and former Defensive Player of the Year Stephon Gilmore proved to be the game-winner.
Gilmore secured the crucial interception to give the Colts a chance, and was then credited with his second pass break-up on the final play of the game to deny the Broncos the winning touchdown.
Cornerback Gilmore will receive a two-year contract worth $23million, of which $14million is guaranteed, ESPN and NFL.com reported on Friday.
It means his stay with the Carolina Panthers has proved short-lived, after he left the New England Patriots to move to Charlotte last October.
Gilmore visited the Colts on Wednesday, with the 31-year-old five-time Pro Bowl star leaving Carolina after playing just eight games for the franchise.
The 10th overall pick in 2012, when he was drafted by the Buffalo Bills, Gilmore moved to New England in March 2017 and helped the Patriots win the Super Bowl in his second season.
Gilmore was crucial in that Super Bowl success, with his interception clinching New England's 13-3 victory over the Los Angeles Rams in Super Bowl LIII, a year after they were beaten in the championship game by the Philadelphia Eagles.
He took Defensive Player of the Year honours in 2019, and after playing 11 games in the following season he moved on to the Panthers.
Sidelined by a torn quad initially, Gilmore was activated in Week 8 and started three of the remaining games as Carolina finished the 2021 season with seven straight losses.
In his first full season as the Baltimore Ravens' starting quarterback, second-year signal caller Jackson threw for 3,127 passing yards, a league-leading 36 touchdowns and tossed only six interceptions.
He also broke Michael Vick's single-season record for rushing yards for a quarterback, amassing 1,206 yards on the ground as the Ravens went 14-2 in the regular season.
They exited the playoffs at the first hurdle, falling 28-12 against the Tennessee Titans, though Jackson still had over 500 yards total offense during that Divisional Round clash.
Jackson started in sensational fashion, torching the Miami Dolphins for 324 passing yards and five touchdowns in a game where he had a perfect passer rating.
The 23-year-old had two other games with five touchdown passes and also had a perfect passer rating against the Cincinnati Bengals in Week 10, when the Ravens were in the midst of a 12-game winning streak.
That victorious run also helped Jackson's coach John Harbaugh win the Coach of the Year award at the NFL Honours on Saturday night.
Elsewhere, New Orleans Saints wide receiver Michael Thomas was voted Offensive Player of the Year, New England Patriots cornerback Stephon Gilmore claimed the Defensive Player of the Year award and Tennessee Titans quarterback Ryan Tannehill won Comeback Player of the Year.
San Francisco 49ers defensive lineman Nick Bosa was named the Defensive Rookie of the Year ahead of his appearance in Super Bowl LIV, with Arizona Cardinals quarterback Kyler Murray the Offensive Rookie of the Year.
It was said on Wednesday that the Patriots were releasing Gilmore, although that move was not to be made official until 16:00 EST.
And the Panthers swiftly stepped in to secure a bargain trade, sending a 2023 sixth-round pick to New England in return for a star in the secondary, who failed to come to terms on a restructured contract in Foxborough.
Gilmore, who was born in Rock Hill, South Carolina, spent four seasons with the Pats before being kept on the sidelines so far this year with a quad injury.
He was eligible to come off the Physically Unable to Perform list in Week 6 and is expected to recover in the coming weeks.
Gilmore brings proven quality to the 3-1 Panthers, having been the NFL Defensive Player of the Year in 2019 when he co-led the league in interceptions with six, including two pick sixes.
However, the highlight of his Pats career, having left the Buffalo Bills where he was the 10th overall pick in 2012, was the interception of Jared Goff that clinched New England's 13-3 victory over the Los Angeles Rams in Super Bowl LIII at the end of the 2018 campaign.
Carolina have had only three total takeaways so far this year, although first-round pick Jaycee Horn is on injured reserve after suffering a broken foot.
Horn, whose place Gilmore will take, has a single interception through three games in his rookie season, having had two in seven games at South Carolina last year.
Kansas City's Week 4 game against New England was pushed back from last Sunday to Monday after Chiefs practice squad QB Jordan Ta'amu and Patriots passer Cam Newton both returned positive COVID-19 tests.
Though Mahomes was able to socially distance from Ta'amu in meetings at the Chiefs' facility, he still took precautions when returning home to Brittany Matthews, who recently announced she was expecting the couple's first child.
"It's something I think about every day - you have to think about that with her being pregnant and kind of that high-risk category," Mahomes told reporters on Wednesday.
"I just try to do my best, especially after Jordan was positive. Here we stay six feet apart and our meeting rooms are set up so we're far enough apart.
"When I went home over the weekend I slept in a different bedroom and stayed away from her as much as possible until I've got these negative tests back.
"I've just tried to do my part, keep myself away from her and social distance whenever stuff like this arises.
"I get tested every single day so it's good for keeping track of where I'm at."
Fresh coronavirus cases emerged during the latest round of testing on Wednesday, with another two Tennessee players now suffering from the virus after the outbreak within the Titans last week.
All Chiefs players returned negative tests on Wednesday but Patriots cornerback Stephon Gilmore, who was named the NFL's Defensive Player of the Year last season, revealed he had contracted the virus.
Gilmore, who has confirmed he is asymptomatic, played against the Chiefs on Monday and footage of him sharing a post-game hug with Mahomes went viral.
"It's a different time, I think that's the biggest thing, and you knew that coming into the season," Mahomes added.
"If you thought you were going to go through the entire season and no one was going test positive then you had a little bit of false hope.
"So, you just trust that the protocols in place are the right protocols. Obviously, with Brittany being pregnant, I try to do whatever I can to social distance and stay away, being available to the team but even more for me [it is about] keeping my family safe.
"I just do my best to stay socially distant and obviously had a little lapse at the end of the game, just trying to show respect to a great football player who I hope is getting better very quickly.
"I will try to keep away from that and try not do it again."
ESPN's Adam Schefter on Wednesday reported the release, which was later confirmed by the two-time first-team All-Pro.
In a statement posted on his Twitter account, Gilmore wrote: "It is with mixed emotions that I announce my goodbye to this great fanbase.
"We enjoyed so much success together and you have been an incredible inspiration for my individual achievements.
"Thank you for supporting this Rock Hill kid and allowing him to achieve his NFL dreams.
"To Mr. Kraft, the coaches, and the organisation thank you for providing me with this platform and allowing me to be a part of this greatness.
"Most of all I want to thank my team-mates who lined up next to me every Sunday with one goal in mind.
"Those moments on and off the field will never be forgotten."
Gilmore was eligible to come off the Physically Unable to Perform list in Week 6, having been kept on the sidelines with a quad injury.
He is expected to recover in the coming weeks but a failure to come to terms on a restructured contract means Gilmore will not be taking the field for New England in 2021.
Having reportedly made unsuccessful attempts to find a trade partner, the Patriots elected to release a player due $7million in base salary in 2021, giving them salary cap flexibility and Gilmore the chance to compete for a second Super Bowl title elsewhere.
Gilmore is expected to receive significant interest on the open market, with both of last year's Super Bowl participants, the Tampa Bay Buccaneers and Kansas City Chiefs, in need of help in the secondary.
Selected 10th overall the 2012 draft by the Buffalo Bills, Gilmore was signed by the Patriots in 2017 and helped them to two Super Bowl appearances. His interception of Jared Goff clinched New England's victory over the Los Angeles Rams in Super Bowl LIII at the end of the 2018 campaign.
He led the NFL in interceptions in 2019 with six but played only 11 games in a 2020 season that ended for him with a torn quad in Week 15.
Patriots cornerback Stephon Gilmore had reportedly tested positive for COVID-19 on Wednesday, becoming the team's second high-profile case after Cam Newton.
Quarterback Newton had missed the Week 4 trip to the Kansas City Chiefs, with that game pushed back a day as a result of isolated cases for both teams.
New England - who lost 26-10 to the Chiefs - had been able to return to the practice field on Saturday, having received no further positive results up to that point.
"One thing that we've learned this year repeatedly has been we have to be ready to adjust and adapt to changes and modifications in the way we do things and in some cases decisions that really come down to a very short amount of time that we have to be ready to adjust to," Pats head coach Bill Belichick told the team's website.
"We're certainly taking things day by day, probably hour by hour would be more accurate."
However, on Sunday the facility was once again closed following the discovery of a fresh case, according to NFL reporters Adam Schefter and Field Yates. New England are said to be undergoing further tests while awaiting guidance from the NFL.
They are due to host the Broncos at Gillette Stadium on Monday, though the latest development makes it unclear if that game will go ahead as planned.
The 2019 Defensive Player of the Year and two-time first-team All-Pro is seeking a new contract and held himself out of mandatory minicamp to attempt to force the Patriots' hand.
Cornerback Gilmore carries a salary cap hit of $16.26million, the largest among players at his position, in 2021.
However, his base salary of $7m is half that of Byron Jones of the Miami Dolphins, who leads all corners in that regard with $14m.
While he appears content to remain in New England, Gilmore clearly wants a contract that he feels reflects his status as one of the NFL's premier corners.
"I just want what I'm worth, however that plays out," Gilmore told ESPN's Josina Anderson.
"Every player should be paid what they're worth. That's just how it is.
"Hopefully, we can find some common ground and get it situated. I just know what I bring to the table and my style of play.
"Right now, I'm just trying to focus on myself and make sure I'm good mentally and physically."
Gilmore was limited to 11 games last season and underwent surgery in the offseason to repair a torn quadriceps muscle.
He added of his physical condition: "I feel stronger than I've ever felt since the surgery. I've been running a lot, building full speed.
"We'll see [if he is ready for training camp]; if I need to be. But I also don't want to push it."
Since signing a five-year, $65m contract with the Patriots in 2017, Gilmore has racked up 52 pass breakups, tied for sixth-most in the NFL, and 11 interceptions.
Tennessee's Week 4 game against the Pittsburgh Steelers had to be postponed because of a coronavirus outbreak within the AFC South franchise, with more than a dozen cases among players and coaches.
There had been two straight days without a positive test, raising hopes the Titans could return to their facility, but NFL Network and ESPN both reported two fresh cases involving Tennessee players on Wednesday, throwing their Week 5 game against the Buffalo Bills in Nashville on Sunday into doubt.
Pats cornerback Gilmore is also reported to have contracted the virus, becoming the second high-profile player in New England to test positive after quarterback Cam Newton last week.
The Patriots' Week 4 trip to Kansas City had to be pushed back a day as a result of isolated positive cases for both teams and was only allowed to proceed because everyone else had received the all-clear.
However, given the virus' incubation period, there will now be a fear over a spread as last season's Defensive Player of the Year Gilmore played on Monday when the Chiefs won 26-10.
ESPN reported no Chiefs players had returned a positive result during their latest round of testing.
However, it also claimed a Las Vegas Raider player had shown to have contracted the virus.
It comes after the NFL issued a memo to teams regarding stricter COVID-19 protocols as it aims to prevent outbreaks similar to the one seen in Tennessee.
