Terms weren't disclosed, but the contract for 2016 is reportedly worth $3.134 million.
"Phil is a consummate professional whose production on the field and his leadership in both the locker room and the community have been great assets to our organization," general manager Trent Baalke said in a statement.
"He has an impressive approach to his craft that has allowed him to consistently rank among the best in the business throughout his career. We are pleased that Phil has chosen to continue his accomplished career with the 49ers."
The 41-year-old Dawson was the 49ers team MVP, which is voted on by the team's players, and he said at the end of the season he was going to head home to Texas to decide whether he would return for an 18th NFL season.
He holds the two longest consecutive-field-goal streaks in 49ers franchise history, converting 27 straight in 2013 and 19 straight this past season, and his 13 field goals of at least 50 yards are the most in 49ers franchise history.
Dawson is also second in league history, among kickers with at least 300 FG attempts, in making 84.5 percent of his career FGs.
Dawson lost his kickoff duties in 2015 to rookie punter Bradley Pinion, but Dawson's 386 career field goals are tied with David Akers for the ninth most in NFL history, and Dawson's 1,611 career points rank 16th in league history.
ESPN 49ers reporter Paul Gutierrez contributed to this report.