The 2021 season will be Hilton's 10th with the Colts, the only franchise he has played for in the league.
Hilton wrote on Twitter that "it's only right I finish what I started."
The 31-year-old Hilton finished with 56 receptions for 762 receiving yards and five touchdowns in 15 games last season. In the 2019 campaign, he appeared in only 10 games due to injuries and notched a career-worst 501 receiving yards.
Hilton, who was selected in the third round of the 2012 draft out of Florida International University, has 608 catches for 9,360 yards and 50 touchdowns in his NFL career.