The 31-year-old has scored 99 goals in 210 games since joining the Galaxy from Bayer Leverkusen in 2005, making him the club's all-time leading goalscorer.
He has enjoyed off-season loan spells with Bayern Munich and Everton during his time at the StubHub Center, where he has helped win three MLS Cups.
The American captain described playing for the Galaxy is a "dream come true".
"I'm thrilled to continue my career here with the LA Galaxy," Donovan told the club's official website. "This organisation has always treated me with the utmost respect and I feel truly blessed that I am able to continue playing here.
"The opportunity to play with the team I love and work to win championships, in front of wonderful fans while also being close to my family, is literally a dream come true."
Donovan is three goals shy of equalling Jeff Cunningham's all-time Major League Soccer record.