A six-time All-Star who won the Calder Trophy as the NHL's top rookie in 1996, Alfredsson has spent his entire career with the Senators. The native of Sweden has been the Senators' captain since 1999.
"I'm excited to get ready for another season," Alfredsson said. "I've been training for about a month and a half, and my body feels a lot further ahead of where it was last year at this point. I expect to come into camp stronger and fitter than I did last year."
Alfredsson, 39, is coming off a season in which he recorded 27 goals and 32 assists in 75 games, helping the Senators secure the Eastern Conference's final playoff berth.
"Daniel's contributions to this hockey team cannot be understated," general manager Bryan Murray said. "He is a leader and a mentor to many of our young players. Daniel is also a great hockey player and we expect him to return and continue to be one of our best players as we look to improve on last year's accomplishments."
Alfredsson is the Senators' franchise leader in a number of categories, including games played (1,131), goals (416), assists (666) and points (1,082).
"Daniel is an exceptional captain whose commitment to his teammates and to the great City of Ottawa is second to none," Senators owner Eugene Melnyk said. "Daniel expects a lot out of himself both on and off the ice so I fully understand how important a decision this was for him and his family. I couldn't be more pleased with the outcome and look forward to Daniel having a great year and adding to his long list of extraordinary achievements with our hockey club."