Lidstrom, a six-times Norris trophy winner as the NHL's top defenseman, has signed a one-year contract with the club, the Red Wings said Tuesday.
"I still think that Nick is the premier two-way defenseman in the world," Red Wings general manager Ken Holland said in a statement. "It's a great day for Red Wings' fans.
"We're watching who I think is the greatest defenseman of his era. When he's done he will go down as one of the top defensemen in the history of the game."
Lidstrom, a Swede who has played his entire NHL career in Detroit, was eligible to become an unrestricted free agent next month.
After the Red Wings were eliminated from the Stanley Cup playoffs by San Jose, Lidstrom discussed his playing future with his family before deciding to return for another season.
A winner of four Stanley Cups with the Red Wings, Lidstrom has registered 237 goals and 809 assists in 1,412 career games.
(Writing by Mark Lamport-Stokes in Los Angeles)