Cole's contract was due to expire at the end of the season, and there had been speculation that he could be on his way out of the club.
"I am pleased I will be starting my eighth season at Chelsea," Cole said. "I have great memories here and I enjoy coming to training every day. The staff are amazing and I enjoy training with the lads.
"I have been able to fulfil nearly all my ambitions at Chelsea. I have won the Champions League, the League, I have won FA Cups here but of course you don't want to stop winning trophies and being at a big club, you are always fighting to win a trophy.
"Being here for seven years and being at Arsenal before that playing for trophies, you never lose that hunger. I wanted to stay at Chelsea because we are always fighting and challenging for trophies. That desire and the will to want to win things have not gone."
The 32-year-old had been linked with the likes of Real Madrid and Paris St Germain.
Cole has been a regular fan favourite at Chelsea since he joined from Arsenal in 2006, winning the Champions League, a league title and four FA Cups with the west London club.