Sidwell made 34 league appearances last season as the Seagulls returned to the top flight after a 34-year absence.
The 34-year-old joined Brighton on an initial loan deal from Stoke in January 2016, before joining the club on a free transfer ahead of last season.
"Steve has been a key member of the squad over the past 18 months," manager Chris Hughton said.
"Our fans know his qualities well, and his experience, particularly at Premier League level, will be important for us."
Brighton midfielder Steve Sidwell has signed a new one-year contract with the newly-promoted Premier League club.