The 36-year-old initially joined the Club on loan in 2019, a deal that remained in place until the end of the 2020/21 season.
When his contract with Derby County ended last summer, he signed for City on a free transfer.
The former England international has now agreed to a further 12 months at the Etihad Stadium.
Having made his senior debut for Leeds United in January 2004 as an 18-year-old, Carson will now continue his career into a 19th season as a professional with City manager Pep Guardiola hailing his dedication, drive and determination as a shining example to all.
As well as Leeds, Carson has also represented Liverpool, Charlton Athletic, Aston Villa and West Bromwich Albion at Premier League level.
He moved to Turkish side Bursaspor in 2011 before spells in the Championship with both Wigan Athletic and Derby County. In total, he has made 521 senior appearances.
The goalkeeper’s debut for City came in the May 2021 victory over Newcastle United before a second appearance in the Champions League round of 16 second leg with Sporting CP earlier this year.
“I’m delighted to be staying with City for another season,” Carson said.
“To work with Pep, the coaches and such talented team-mates is a real honour and one I relish every day.
“I have already gained so much from my time here and hopefully I can keep helping to push the Club’s other goalkeepers to be the best they can be.”
Director of Football Txiki Begiristain added: “Scott is an exemplary professional and his experience is of real benefit to the entire squad.
“His teammates, especially the goalkeepers, have great respect for his achievements in the game and his support has been a huge help to them.
“As he has demonstrated, we know he is always ready to play should he be called upon.”
Everyone at the Club would like to congratulate Scott on signing his new deal.