The Panthers did not disclose terms of the deal, but a source told ESPN's Pierre LeBrun that Jagr will earn a base salary of $4 million plus another $1.5 million in potential bonuses.
"Jaromir is a Hall of Fame player and had an excellent season playing alongside Aleksander Barkov and Jonathan Huberdeau," general manager Dale Tallon said. "His track record speaks for itself, ranking third all time in points and goals. He has been a great fit with our organization and we are excited to have him back for next season."
Jagr had 27 goals and 39 assists this season to become the oldest player in NHL history to surpass the 60-point plateau. He is up for the Bill Masterton Memorial Trophy as the NHL player who best exemplifies the qualities of perseverance, sportsmanship and dedication to hockey.
"Jaromir has had a tremendous influence on our younger players and has been a key offensive contributor on our team," Panthers coach Gerard Gallant said. "We are happy to have him back as we look to build off this year's playoff appearance."
The Panthers won the Atlantic Division title and set franchise records for points and wins, before falling in the first round of the playoffs to the New York Islanders.
Next season will be Jagr's 23rd in the NHL. He enters next season with 1,868 points, putting him 19 away from tying Mark Messier for second in NHL history.
Information from The Associated Press was used in this report.