Davies is the latest player to sign a new contract at the Ospreys, following on from centre Owen Watkin, lock Adam Beard, wing Keelan Giles, fullback Cai Evans and props Tom Botha and Rhodri Jones.
They were joined by new signings scrum half Rhys Webb and fullback Mat Protheroe.
He has played 56 games and scored two tries for the Ospreys and represented Wales at all age group levels, captaining the Wales U20s when they won the Grand Slam in 2005.
Davies has experience of playing in the English Premiership and the Guinness Pro14 and was part of the Wales squad that reached the semi-finals of the World Cup in Japan.
He has agreed to take on a mentoring role of younger players in the Ospreys squad and already plays a key role in the Ospreys lineout strategy.
"I still feel I have a lot to offer as a player but I know my job here now is more than rugby and that is mentoring the younger boys, helping them develop and passing on my experiences to them," said Davies.
"I was lucky to have senior pros, like Rob Sidoli, Deiniol Jones and Paul Tito, do that for me when I was a young player and I feel I have a duty to the boys coming through because I was helped so much when I started.
"I remember the players who sat me down after training and talked about tactics, the mental side of the game, and the physical side of the game; just everything that helps you succeed as a professional rugby player.
"While I know my role is about helping the next generation of Ospreys locks, like Will Griffiths and Adam Beard, I still have a job to do on the field and that is getting the Ospreys back to where we belong.
"The Ospreys were always the leading Welsh region and most successful and we need to get back up there. We have had a blip but the Ospreys were always the side winning trophies and being up there."
Davies is taking his WRU Level 3 coaching badge under Dan Clements' program designed to develop professional players into coaches and has ambitions to be a coach when his career ends.