The 29-year-old's new terms at the King Power Stadium are due to expire in summer 2016.
Nugent, who joined the Foxes from Portsmouth in 2011, scored 20 goals last season to help the team gain promotion to the Premier League.
"I'm delighted to have signed for two years and I'm really looking forward to testing myself with the rest of the squad in the best league in the world," he told the club's official website.
"Last season was the best of my career in terms of goals and assists, but I wouldn't have managed it without the lads around me so I'm really pleased the squad has been kept together. I think we've got a great chance of doing well in the Premier League."
Leicester start their Premier League campaign at home to Everton on August 16.