The 31-year-old Donovan took a three-month break from soccer this year as he thought about his future but returned to the Galaxy in April, since netting seven goals and seven assists for second-place Los Angeles.
With his current contract expiring at the end of the year, Donovan announced he has re-committed to the team and the league.
"I'm thrilled to continue my career here with the LA Galaxy," Donovan said in a statement. "This organization has always treated me with the utmost respect and I feel truly blessed that I am able to continue playing here.
"The opportunity to play with the team I love and work to win championships, in front of wonderful fans while also being close to my family is literally a dream come true."
Donovan has won three championships with the Galaxy and two with the San Jose Earthquakes during his 13-year career in the league, racking up 131 goals -- four behind Jeff Cunningham's MLS record -- and 115 assists over 297 games played.
He is also the U.S. men's all-time leading goal-scorer with 56 markers over 151 appearances.