Bailey, who made $2.4 million in 2012 when he also avoided arbitration, filed at $5.8 million, while the club offered $4.75 million.
The deal got done on Friday night. Bailey's hearing was scheduled for Monday. He was the last of seven Reds to be eligible for arbitration this offseason.
"It drags on too long. It's a very tough process," Reds general manager Walt Jocketty said on Saturday morning.
The closest to going to a hearing was pitcher Mat Latos, who agreed to a two-year, $11.5 million deal Tuesday, moments before his hearing was scheduled to start.
In the other deals that avoided arbitration, Soo Choo signed a one-year, $7.3 million contract this week. Last month, reliever Logan Ondrusek signed a two-year, $2.3 million deal with several incentive clauses. Pitcher Mike Leake was signed to a one-year, $3.06 million contract last week. Outfielder Chris Heisey got a one-year, $1.325 million contract and reliever Alfredo Simon inked a one-year, $890,000 contract.
Cincinnati has not gone to arbitration since defeating Chris Reitsma in 2004.
Bailey's signing means there are 21 Reds players under contract for 2013, for a total of $100 million. This year, the Reds will have the highest payroll in club history.
Jocketty felt this was the toughest arbitration group he's ever had.
"Absolutely, with the number of guys and the quality of guys," Jocketty said. "We had some tough cases."
Jocketty said "at some point," the club would revisit trying to sign Bailey to a multiyear contract.
Bailey, 26, was 13-10 with a 3.68 ERA in a career-high 33 starts in 2012. He also established career bests in wins, innings (208), strikeouts (168) and quality starts (21), while leading the National League with a 2.32 road ERA.
The finest individual moment of Bailey's career came on Sept. 28 at PNC Park in Pittsburgh, when Bailey threw a no-hitter with 10 strikeouts during a 1-0 win over the Pirates. It was the first no-hitter for the club since Tom Browning's 1988 perfect game and the 15th no-hitter in franchise history.
The Reds' first-round Draft pick in 2004, Bailey has already made 111 starts during his young career. He is 38-33 lifetime with a 4.50 ERA.