The injured Ireland captain, whose current central contract with the Irish Rugby Union expires this summer, had been linked heavily with a move to Biarritz, but has now signed a new deal to stay with Leinster until the 2007 World Cup.
"My desire from the beginning of this season has always been to play for Leinster and Ireland and I am thrilled to remain within the current set-up," said O'Driscoll.
"I am now looking forward to getting myself back on the field playing as soon as possible and working with the coaching staff in both Leinster and Ireland for the remainder of the season."
O'Driscoll has not played since dislocating his shoulder in the first Lions Test against New Zealand this summer but has targeted a Boxing Day return in Leinster's Celtic League clash with Ulster.
The 26-year-old has made it clear that one day he wants to play his rugby in the French championship and speculation that he could be heading for the continent at the end of this season was fuelled by his appearance at a match between Biarritz and Stade Francais in September.
However, the IRFU were determined to keep O'Driscoll, who has captained Ireland since Keith Wood's retirement after the 2003 World Cup, on home soil.
The likes of Shane Byrne and Johnny O'Connor ply their trade in the Guinness Premiership while Simon Easterby plays for Welsh province Llanelli in the Celtic League.
But the IRFU want to keep as many players under central contract as possible to ensure their welfare is properly managed.
The union's chief executive Philip Browne said: "It is the ongoing determination of the IRFU where possible to keep the leading players at home and manage their welfare.
"It is, therefore, most pleasing to see that a player of Brian's standing in the game has committed himself to both club and country.
"The IRFU is delighted that Brian has pledged his immediate future to Leinster and that he will continue to play his rugby in Ireland.
"There is no doubting his ability at the very highest level and it is a testament to both Brian and to the current structures that are in place at both provincial and international level that he has chosen to remain in Ireland."
Leinster's chief executive Mick Dawson added: "It's very important to us that we keep our best players at home and continue to be as competitive as possible in all competitions.
"I now look forward to seeing Brian back playing as soon as possible. This will be a great boost to all involved."