Reports had linked the Frenchman with Bordeaux in France, Turkish outfit Besiktas and AS Roma in Italy but manager David Moyes never had any doubts.
Speaking ahead of the 213th Merseyside derby at Anfield, the Blues boss stated: "We have always felt quite confident that Louis would sign a new contract."
Everton had been desperate to hold on to their top scorer this season, who has also played for Newcastle and Fulham.
Talks between the player's representatives and club officials had been ongoing for a couple of months.
It is a pleasure to be here and see the way the fans work for the team
Louis Saha Everton
And Saha has revealed that the Goodison faithful played a big part in his decision to remain at the club.
"I appreciate the way the Everton fans support the team and the way they support me all the time," he added.
"It is a pleasure to be here and see the way the fans work for the team, they help all the players. It feels like a family and I really feel a part of it."
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