The 34-year-old centre took his time to weigh up his options but has put pen to paper on a one-year deal that will see him remain in the spotlight until the end of the 2013/14 campaign.
"I want to thank the IRFU and Leinster for allowing me the time to think about my future and discuss my options with my family," said O'Driscoll, who is preparing for his fourth Lions adventure having previously toured in 2001, 2005 and 2009.
"The support my family and the Irish and Leinster fans have shown me over the past few months, and indeed years, has been phenomenal and I am now very much looking forward to one more year playing with Ireland and Leinster."
O'Driscoll is currently the second most-capped player in international rugby with 125 appearances for Ireland and six more for the Lions.
Rumours were rife that the three Tests in Brisbane, Melbourne and Sydney this summer would be his last chance to add to that tally but he could now pass George Gregan's record of 139 next spring.
The veteran midfielder has been a mainstay in the Ireland side since making his debut in 1999 and IRFU chief executive Philip Browne believes his decision to continue playing is great news for Irish rugby as a whole.
"The IRFU is delighted that Brian has chosen to sign a new contract, ensuring he remains available to Ireland and Leinster for one more year," said Browne.
"Brian is a truly exceptional talent and there is no doubt that this new contract will boost our game, at every level, in the coming year.
"We wish him, his Leinster and indeed his Lions teammates all the very best in their forthcoming games and look forward to working with Brian in the 2013/14 season."
There was some bad news for Leinster and O'Driscoll following the announcement, however, after he was ruled out of tomorrow night's Amlin Challenge Cup Final against Stade Francais.
The triple Heineken Cup winner suffered a back spasm in last week's win over Glasgow - a problem that prevented him from attending the Lions' first gathering in London on Monday - and hasn't recovered in time to play a part at the RDS.
Five of his Lions team-mates do feature for Leinster, though, with Jamie Heaslip, Rob Kearney, Sean O'Brien and Jonathan Sexton handed starting spots and Cian Healy named among the replacements.