The deal will be worth around $6 million, a source told ESPN.com.
The defenseman, who will turn 38 on March 18, would have been an unrestricted free agent in July.
He's in the last season of a six-year, $38 million deal that pays him $3 million this season but carries a $6.33 million cap hit.
"We are pleased to announce that we have signed Kimmo Timonen to a one-year contract extension," Flyers general manager Paul Holmgren said in a statement Thursday. "Kimmo's presence on the ice for us and in our locker room is invaluable. We look forward to him continuing his all-around play for us."