Hill, 39, will start his 17th NBA season, including his fifth in a row with the Suns.
Last season, Hill averaged 13.2 points.
"Grant Hill represents everything we want the Phoenix Suns to stand for, both on and off the court," said president of basketball operations Lon Babby. "Grant had other attractive offers, so we are delighted that he has chosen to remain a Sun."
A seven-time All-Star, Hill has averaged 12.4 points, 4.9 rebounds and 2.5 assists since joining Phoenix prior to the 2007-08 season.
Also on Sunday, the Suns signed guard Sebastian Telfair and first-round pick Markieff Morris.
Terms of the deals were not disclosed.
Telfair, the 13th overall pick in the 2004 NBA Draft, owns career averages of 7.8 points, 1.6 rebounds and 3.8 assists. He spent last season with the Timberwolves, averaging 7.2 points and 3.0 assists.
Morris was selected with the Suns' 13th pick in June's draft. He averaged career highs of 13.6 points and 8.3 rebounds last season with Kansas.