While the deal was officially announced on Wednesday, Gasol had announced the deal on his Twitter page on Monday.
While official numbers were not released, The Commercial Appeal reported the agreement to be a four-year deal worth nearly $58 million.
"We are very happy to re-sign Marc Gasol, who has been one of the pillars of the Grizzlies franchise since his arrival and a true 'Memphis basketball player' ever since his days at Lausanne," said Memphis general manager Chris Wallace. "We are excited to keep him as part of our core group players and to build on what this organization has already achiever for many years to come."
The 7-foot-1 center averaged 15 points, 11.2 rebounds and 2.15 blocks a game during the Grizzlies' 13-game playoff run last season that included a first-round upset over the top-seeded San Antonio Spurs. The Grizzlies were eliminated in a seven-game series with Oklahoma City.
The 26-year old averaged 11.7 points, seven rebounds and a career-high 2.5 assists while leading the Grizzlies in blocks (1.68) and field goal percentage (.527) during 81 regular season games.
Gasol has played his entire three-year career in Memphis.
Also on Wednesday, the team waived guard Ish Smith.
He played in 43 games in his rookie season last season with Memphis and Houston and averaged 2.3 points and 1.8 assists in 10.3 minutes per game.