The 35-year-old striker, who was due to be out of contract this summer, will now remain with the Glovers until the end of next season.
"I am really pleased that James has accepted a contract extension," Yeovil boss Gary Johnson told the club website. "He is a model professional and a hugely important member of our squad."
Hayter joined the Glovers from Doncaster Rovers in 2012 and has scored 20 league goals in the last two seasons.
Yeovil will be playing their football back in League One next season after lasting for just one season in the Championship.