Callam confirmed he would be staying in Scotland despite being linked with a move to French club Bourgoin-Jallieu.
His decision bucks a recent trend among Scotland internationals for leaving the domestic game, with club colleagues Simon Taylor, Rob Dewey, Ally Strokosch and Ally Dickinson having all found new clubs for next season.
Callam has taken his tally of caps to six after starting in Scotland's three RBS 6 Nations Championship matches this season.
His decision to stay at Murrayfield delighted Edinburgh head coach Lynn Howells, who said: "It is great news that we have re-signed a player of David's calibre.
"It shows Edinburgh will be able to compete at the highest level in future with players of David's quality re-signing for the club and demonstrates our intent to secure the top Scottish rugby players."
Sale Sharks had also been suggested as a possible destination for 24-year-old Callam, who began his career at Hawick before joining Edinburgh in 2004 and is a Scottish Institute of Sport member.
Edinburgh chairman Alex Carruthers confirmed there had been interest from outside Scotland.
Carruthers said: "We were determined to retain a player of his stature, and so are pleased to have fought off competition from other clubs to keep David in Scotland."