Terms of the deal were not disclosed.
He tweeted about his new deal Sunday night.
Butler's value is in the slot. Even when he started in place of the injured Greg Toler or Vontae Davis, Butler would slide to the inside and defend the slot receiver because that's where he felt most comfortable playing.
Butler, who will turn 29 on March 18, finished the 2014 season with 46 tackles, nine passes defended, two forced fumbles and a fumble recovery.
He was a second-round selection of the Patriots in the 2009 draft. He spent two seasons in New England and one with Carolina before joining the Colts in 2012.
ESPN.com Colts reporter Mike Wells contributed to this report.