The contract is worth $9 million, a source told ESPN NFL Insider Adam Schefter.
"Sometimes you have fortunate signings in this business, and Justin was one of those," general manager Ozzie Newsome said in a statement. "We were fortunate because he became such a vital part of our on-field success and quickly became a steadying influence in the locker room at an uneasy time for us. He gave us more than we anticipated. From what we expected, he gave us unprecedented production."
Forsett, 29, was among the biggest surprises in the NFL last season, when he finished No. 5 in the league in rushing. A journeyman who played for four teams in four years, Forsett led all running backs with 5.3 yards per carry.
"I don't think anybody envisions going to the NFL and being on five teams in seven years," Forsett said Thursday. "The want to have some stability, some security, and I feel like I got that here in Baltimore. I'm excited about it."
He became a featured runner for the first time in his seven-year career after Ray Rice was abruptly released. With good patience and vision, Forsett was an excellent fit for the Ravens' stretch zone-blocking scheme, producing a league-high 17 runs of 20 yards or more.
Forsett, who signed a one-year deal for the veteran minimum of $730,000, made it clear that he wanted a longer commitment this offseason. He was the only running back last season to run for at least 1,200 yards and average over 5 yards per carry.
"He fits well into what we do on offense, and he handles all parts of the job effectively, including blocking and receiving," Newsome said in the statement. "I mentioned this a few weeks ago when we met with the media: Justin is a tremendous leader by example and willing to step up as both a leader and mentor. He is truly a success story, and we're happy he'll continue that with us. He earned his new contract."
The question surrounding Forsett is whether he is product of a system. He is the ninth running back to gain over 1,000 yards rushing under Gary Kubiak, the Ravens' offensive coordinator last season who left the team to become the Denver Broncos' head coach. Former Chicago Bears head coach Marc Trestman is the team's new offensive coordinator.
"I'm as hungry as ever at this point," Forsett said. "Throughout my whole career, people have been telling me what I can't do from Pop Warner to high school to college and now in the pros. Even in free agency, throughout my whole career, people have been saying 'OK, you're too short, you're too slow, you're too small.' Throughout free agency, I would hear, 'he's a little too old.' There's always something and I'm hungry to go out and show that I'm only going to get better with time."
ESPN.com Ravens reporter Jamison Hensley contributed to this report.