He's now under contract through the 2014 season.
Jackson was heading into the final year of his deal.
"We can feel the excitement in the locker room," Jackson said Monday at a press conference in Buffalo. "I feel like something special is about to go down and I want to be a part of it."
Jackson, 31, rushed for 934 yards last season despite missing six games with a broken fibula.
He had 1,376 yards from scrimmage last season.
"He is a huge piece of the puzzle for us," Bills general manager Buddy Nix said.
Jackson rushed for 927 yards two seasons ago, rushing for 1,062 yards in 2009.
He averaged 5.49 yards per carry, the most by a Bills running back since O.J. Simpson's 5.52 per rush back in 1975.
The 6-foot-1, 216-pound running back has 3,794 rushing yards and 16 touchdowns with 175 catches for 1,535 yards and four touchdowns since signing with Buffalo as an undrafted free agent six years ago.
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