Terms were not immediately announced, but the Denver Post reported that the deal is worth $13 million with a $3 million signing bonus.
"This was the final piece in setting our roster for camp, and we are thrilled Matt is going to be a Bronco for a long time. ... Matt has developed into one of the NFL's elite kickers and is a big part of our team.," Broncos executive vice president John Elway wrote in a series of tweets announcing the deal.
Prater was a clutch performer for the Broncos down the stretch last season with four game-winning field goals. He had three straight weeks in which he kicked the winner on the game's final play, helping Tim Tebow and the Broncos go on a six-game winning streak that propelled them into the playoffs for the first time in six seasons.
He also led the league in touchback percentage (70.1) when 47 of his 67 kickoffs were not returned.
Prater has the highest percentage in league history from 50 or more yards, having connected on 12 of 16 kicks for a 75 percent clip.
Entering his sixth NFL season, Prater ranks second in team history with an 80.4 percent field goal conversion rate, just behind Jason Elam's mark of 80.6 percent. He owns the best field goal percentage (75) from 50 or more yards (12 of 16) and has converted 28 of 29 field goals in the fourth quarter or overtime.
Information from The Associated Press contributed to this report.