Shams Charania of Stadium and The Athletic reported the update Thursday.
Holiday averaged 5.9 points, 1.7 assists and 1.3 rebounds in 12.9 minutes per game across 50 appearances as a rookie last season after the Pacers selected him with the 23rd pick in the 2018 draft.
"I think he's going to be a really good guard in this league," head coach Nate McMillan told reporters in April. "He's going to be able to play and help us. He keeps himself ready to play and when he's called upon, he's gotten in the game and played solid minutes for us."
The departures of Darren Collison and Cory Joseph should create an opportunity for the 23-year-old UCLA product to earn a more expansive role in his second season.
Although the Pacers have exercised their first team option, he'll remain under franchise control for at least four years, counting the upcoming 2019-20 season, per Spotrac. The Pacers hold another option for 2021-22, and the guard would be a restricted free agent during the 2022 offseason.
Malcolm Brogdon, Indiana's starting point guard, signed a four-year, $85 million contract with the Pacers as part of a sign-and-trade deal with the Milwaukee Bucks.
Holiday's progress over the next three years will determine whether he emerges as a potential starter by the time he signs his first significant extension.