Collison, 36, signed a one-year, $2.3 million deal for the veteran's minimum, according to multiple reports.
"We are excited that Nick is returning for his 10th season with the Thunder and know he will bring tremendous depth to our team," general manager Sam Presti said in a statement.
Collison, who played just 6.4 minutes per game last season, was drafted by the SuperSonics in 2003. He has spent 14 seasons with the franchise, holding the distinction as the only Thunder player at the end of last season to have played in Seattle.
Collison, who has averaged 20.7 minutes per game during his career, saw his playing time severely dip last season, appearing in 20 games. With his contract up, retirement was thought to be a consideration for Collison, but he stated after the season he still feels he has more to give.
"I plan to play for sure," Collison said. "I wasn't sure going into the season how I would feel at the end of the year, but I still enjoy playing, and I enjoy being around the group. I enjoy being on the team, and I still think I have something to offer."
Collison is the rare player to have spent such a long time with one franchise, and even more remarkably, this is the first time he had ever been a free agent. In previous years, he signed contract extensions with the Thunder before reaching free agency.
Collison holds career averages of 6.0 points and 5.2 rebounds in 895 games.
ESPN's Royce Young contributed to this report.