The decision ends months of speculation about his future plans.
(Renault) had "always been my first choice and I feel happy and comfortable with them," the F1 driver said.
Reports had said the two-time circuit title-winner, a native of Oviedo, Spain, considered a jump to Ferrari.
"After a difficult start to the season, we have overcome our difficulties and constantly improved our performances," Alonso said in a statement. "In the past we have won championships together, as well as going through tough moments, but we are now determined to show we can repeat that success together in the coming seasons."
This season, Alonso finished fifth behind champion Lewis Hamilton of England, Brazil's Felipe Massa, Poland's Robert Kubica and 2007 champion Kimi Raikkonen of Finland.