There was speculation about the future of the 37-year-old midfielder, who is currently on international duty as captain of Northern Ireland, after Giovanni van Bronckhorst’s side ended the season by capturing the Scottish Cup with a 2-0 extra-time win over Hearts at Hampden Park.
The hugely-respected Davis told Gers’ official website: “I am absolutely delighted.
“It was a really important season for us last year, and to finish on a high with the Scottish Cup was important for the team and the group and we want to try and kick on again next year now.
“Growing up as a Rangers fan, it was always going to be special pulling on the jersey, and I have been very fortunate to do it the number of times that I have and to have some of the memories I have had.
“We know success is what is demanded at the club, and you want to play at the highest level possible, and we have shown we are capable of doing that as a group, so it is really important we try to kick on next season and get our hands on more silverware.”
Davis initially joined Rangers on loan from Fulham in January 2008, and made the move permanent at the end of the season and stayed until the summer of 2012 before he signed for Southampton.
During that period he won three league titles, three League Cups and two Scottish Cups, while also claiming a runners-up medal in the 2008 UEFA Cup final.
Davis returned to Ibrox in the 2019 January transfer window, again on an initial loan, subsequently winning a further league title, Scottish Cup and Europa League runners-up medal.
Sporting director Ross Wilson said: “It’s great that we will continue to have Steven’s influence and understanding of Rangers with the group over the course of the next 12 months.
“I’ve known Steven a long time now, both as a player and character who sets standards every day.
“Steven and Gio had a really good chat about how the manager sees the next 12 months, and as a club we are also keen to support Steven’s development in his coaching aspirations when the time is right and when he wants to do that.”