Borthwick, who misses England's tour to Australia after undergoing minor knee surgery, arrived at the Recreation Ground from Preston Grasshoppers in 1998.
The 26-year-old has made over 200 appearances for Bath and was handed the captaincy last year with the highlight of his time in charge a European Cup semi-final against Biarritz.
Borthwick said: "I'm really pleased to be re-signing for a club that is very important to me. Given the right investment, we face very exciting future.
"I've enjoyed the year as captain and am immensely proud of the way the team has fought throughout the year.
"There have been some great victories but I am also aware of the need for greater consistency next season."
Borthwick has won 27 England caps and Bath head coach Brian Ashton underlined his growing stature in the game.
He said: "It's fantastic news for Bath and all the supporters.
"Steve is not only a great club captain but also an international forward of growing reputation and he will be a major figure over the next season."