Under the terms of his contract, Wagner, 33, will be paid $9,000,000 next season.
If the club had not exercised his 2005 option, Wagner would have been owed a $3 million buyout and would have been eligible to file for free agency.
Wagner went 4-0 with 21 saves and a 2.42 ERA this past season. Because of injuries (a strained left groin muscle and strained left rotator cuff), he made two trips to the disabled list. He posted a 0.36 ERA in his final 24 appearances.
Also, reliever Felix Rodriguez decided to exercise the 2005 player option that was part of his contract.
Rodriguez, obtained in a trade with San Francisco, will be paid $3,150,000 next year and, like Wagner, would have been eligible for free agency had he not exercised the option.
"Having both Billy and Felix under contract allows us to focus on other needs going forward," General Manager Ed Wade said on the team's Web site.
Costly malfunction causes beer flood at Boston-area brewery
Wisconsin business offering 'therapeutic cuddling' forced to close