Six-foot Nelson, embarking on his fourth NBA season, has averaged 11.9 points, 4.0 assists and 2.8 rebounds in 218 games for the Magic.
"Jameer is a key part of our foundation," Orlando general manager Otis Smith said. "He is a tremendous leader, both on and off the court, and he will continue to improve as we strive to reach our ultimate goal.
"We look forward to watching Jameer develop in a Magic uniform for many years to come."
In keeping with the club's policy, terms of his deal were not disclosed.
Nelson averaged 13.0 points in 77 games last season when the Magic claimed the final playoff spot in the Eastern Conference with a 40-42 record.
"We have now got a good core of guys locked up for a while which really enables you to start the process of building a solid team," Magic coach Stan Van Gundy said.