The Welsh international's stock rose considerably after the Lions' summer tour of South Africa.
Jones' performances on the 10-match tour match of the Republic received rave reviews before injury ended his involvement mid-way through the second Test in Pretoria.
Despite his continued absence following that dislocated shoulder, interest regarding his future continued to grow and leading English and French clubs were touted as possible suitors.
But the 28-year-old has given Ospreys supporters the news they were hoping for by agreeing to remain at the Liberty Stadium for another three years up until the end of the 2011/12 season.
"It's nice to sign a contract while I'm still out injured as it means I can just focus on the next two months and being back playing just before Christmas without this hanging over me," said Jones, who came on as a replacement for the Lions in the first Test in Durban before starting the second international at Loftus Versfeld a week later.
"The Ospreys could have said to me that they wanted to see how my shoulder mended before committing to a contract so it's great to see that they've got the faith in me and I want to reward that faith.
"I've been around for a while now, first at Neath, and then with the Ospreys since the start, but there's still a lot that I want to achieve here. There's a lot more to come from me and from the Ospreys, which is why it's pleasing to have at least another three years.
"It's probably been a good time for me to sign a contract, after a pretty good season that was rounded off with the Lions, but to be honest, there's only one place that I want to be playing rugby. Now I can just get on with the real business which is helping to make the Ospreys successful."