The England striker had looked destined to leave Old Trafford in the next transfer window after saying on Wednesday that he wanted to quit because of United's lack of clout in attracting more top players to the club.
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He attributed his change of heart to manager Sir Alex Ferguson, whom Rooney called a "genius" and said had convinced him that he belonged at United.
Ferguson, who had been visibly shaken this week when describing how his striker had wanted to quit, said Rooney had apologised to him and the players and had changed his mind after understanding "what a great club Manchester United is".
But Rooney, who earlier this month publicly contradicted Ferguson by saying he was not injured when his manager said he was, still faces the tricky job of winning over fans who feel betrayed.
"I'm delighted to sign another deal at United. In the last couple of days, I've talked to the manager and the owners and they've convinced me this is where I belong," Rooney said in a statement.
"I'm signing a new deal in the absolute belief that the management, coaching staff, board and owners are totally committed to making sure United maintains its proud winning history - which is the reason I joined the club in the first place."
Ferguson had been locked in talks with chief executive David Gill to sort out what he said was in danger of becoming a 'saga'.
His bemusement turned to delight, with a photo on the club's website showing a beaming Ferguson with his arm around a smiling Rooney after the announcement of a deal that would keep the player at the club until at least June 2015.
"He apologised to me this morning and the players and I think he'll do that with the fans which is important because we've all been hurt by the events of the last couple of days," Ferguson told MUTV.
"I always feel it's a quality in a person when they say they're sorry and realises he's made a mistake, particularly young people, I admire that in people. The job now is to put it behind us, get Wayne Rooney back on that pitch and playing the way that Wayne Rooney can play."
BUILD BRIDGES
Ferguson had said in an earlier statement that Rooney had "accepted the challenge to guide the younger players and establish himself as one of United's great players".
The news stunned the footballing world, with former United player Lou Macari telling Sky Sports News: "I thought it was April 1. Nothing has shocked me more in football ever than this week."
Despite pledging his commitment to the club, in a deal where the financial details were not revealed, Rooney may still have some bridges to build with fans who felt angry over his exit plans and players who may have felt let down by their team mate.
"I'm sure the fans over the last week have felt let down by what they've read and seen," said Rooney.
"But my position
