"As players we are so well looked after by both the national and provincial management teams and I feel incredibly privileged to be able to play the sport I love for both Munster and Ireland," said O'Callaghan.
"Munster is my home province and the decision to continue my career here was an easy one when you consider the standard of players in the squad and the incredible support I have received from both the fans and my family.
"My focus now is to try and perform as well as I can to help Munster and Ireland to be successful."
O'Callaghan, who will line-up for Ireland this Saturday against Samoa to win his 65th cap, made his international debut against Wales in Cardiff in 2003 and has gone on to become an ever-present force in the Irish pack
During his senior international career he has played in two World Cups and has won five Triple Crowns, one RBS Six Nations Championship title and Ireland's second ever Grand Slam in 2009.
While with Munster he has won two Heineken Cups, two Magners League titles and the Celtic Cup.
Ireland head coach Declan Kidney was delighted to keep hold of another of his prized assets.
"It is very important that we continue to retain players of the calibre of Donncha in Ireland and I am delighted that he has made the decision to remain here," said Kidney.
"I have had the pleasure to work with Donncha through many years of his career and seen him develop into the top class player that he is now.
"His professionalism and work ethic is second to none to the point where he is highly respected by coaches, players, opposition and supporters in equal measure."