The 31-year-old will join Pakistan batsman Younis Khan at Headingley.
He claimed 36 wickets in last year's County Championship at an average of 36.33.
"His performance in the latter part of 2006 played a significant part in maintaining our Division One status and his work-rate, attitude and commitment to Yorkshire were exemplary," chief executive Stewart Regan said
"Jason is a model professional who always spends time with our younger supporters and is always willing to assist the club however he can."
Gillespie has played 71 Tests for Australia and 97 one-day internationals, but has rarely featured since his country's Ashes tour of 2005 and did not play in the first three Tests of the current series and is not in the squad for the fourth.