The deal was agreed to last week but couldn't be made official until Thursday, when the NBA's moratorium on free-agent signings ended. Terms weren't disclosed, but sources told ESPN.com it was for $48 million over four years.
The 6-foot point guard posted career highs with 17.9 points and 7.4 assists per game in helping the Raptors to a club-record 48 victories and their second Atlantic Division championship. General manager Masai Ujiri says in a statement that re-signing Lowry was Toronto's top priority.
The Raptors acquired Lowry from the Houston Rockets in July 2012. In his two seasons with Toronto, Lowry has averaged 15.0 points and 6.9 assists in 147 regular-season games.
The Associated Press contributed to this report.