Foote's deal is worth $1 million in base salary plus $250,000 in bonuses, a source told ESPN.com's Pierre LeBrun.
Foote was an integral part of Colorado's turnaround in 2009-10 as he guided a youthful squad into the playoffs a season after finishing last in the Western Conference. The Avalanche threw a scare at the top-seeded San Jose Sharks before tumbling in six games.
"This organization is definitely heading in the right direction," said Foote, who will turn 39 in July. "Having a young group like we did last year come together and compete at a high level was very special. We're looking to carry that momentum into next season."
The hard-hitting defenseman finished the regular season with nine assists in 67 contests.
However, his biggest contributions may have come away from the ice. Foote invited rookie forward Matt Duchene to live in his basement, serving as Duchene's mentor and easing his transition into the NHL.
Under the tutelage of Foote, Duchene quickly adapted to life in the league, proving quite dangerous with the puck on his stick. Duchene led all NHL rookies in points (55) and tied for most goals (24) with John Tavares of the New York Islanders.
"Adam's veteran leadership has been and will continue to be a big part of our success," Avalanche GM Greg Sherman said. "He provided stability last season and set an example for our young players right from the start of training camp."
Former Avalanche captain Joe Sakic was pleased to hear the news that Foote would return for another season. Sakic and Foote helped the Avalanche win Stanley Cup titles in 1996 and 2001.
"He's a great leader and had a great year last year," Sakic said after finishing up a round of golf in a pro-am event Tuesday before the start of the Senior PGA Championship in Parker, Colo. "It's great he gets to stay here."
Foote has played in 1,107 games in 18 seasons and amassed 1,501 penalty minutes suiting up mostly for Colorado but also spent three seasons with Columbus.
The Associated Press and ESPN.com's Pierre LeBrun contributed to this report.