Chadwick, 32, initially joined the Dons on loan from Norwich in October 2008 before making the switch permanent in January 2009 and has gone on to make over 200 appearances for the club.
The former Manchester United winger has also scored 20 goals, becoming a firm favourite at stadium:mk.
The contract extension will keep the two-time Dons player of the year at the club until the summer of 2015.
"Luke Chadwick is an incredible athlete, an incredible professional and an incredible man to work with," manager Karl Robinson told the club's official website.
"He leads from the front with his performances and commitment to the team. Every game, without fail, Luke will run himself into the ground to do his best for his team-mates and the club.
"I am thrilled he has committed to two more seasons with us. When Luke Chadwick is at his best, the team is at its best."