The softly spoken 36-year-old Czech Republic native, who helped Colorado win the Stanley Cup in 2001, has played for the club for the last 13 years.
A triple Olympian, Hejduk recorded 11 straight 20-goal seasons in Colorado from 1999-00 to 2010-11, and is just nine games short of becoming the first player in the franchise to appear in 1,000 games.
"Over the years, Milan has been an instrumental part of our organization's success," Avalanche General Manager Greg Sherman said in a statement.
"He has represented this franchise with class and will continue to complement the young nucleus of players we have been building this team around."
Originally selected by the Quebec Nordiques in the fourth round of the 1994 NHL Draft, Hejduk has recorded 371 goals and 423 assists in 991 games in the league.
He ranks fourth all-time in goals and points (794) for the franchise, and fifth in assists.
"My family and I are very excited to continue my career here in Denver," Hejduk, an All-Star in 2000, 2001 and 2009, said. "I believe in this organisation and our young players and look forward to helping the team in any way that I can."