The 33-year-old, whose previous deal with the club came to an end this summer, was widely expected to leave following their relegation to League One.
However, the experienced midfielder took to social networking site Twitter to confirm his new role at London Road.
"Delighted to announce I have signed a 2 year player coach role at Peterborough Utd. £league1title," he tweeted.
McCann made 43 appearances for the club last season.