The 28-year-old, who scored seven goals in 40 appearances as the Dons won promotion to the Championship last season, will now stay at stadium:mk until the end of the 2016/17 campaign.
Bowditch is thrilled with the prospect of helping the Dons establish themselves as a second-tier club.
“I’m absolutely over the moon,” he told MK Dons Player. “As soon as the club said they wanted to offer me a contract, I was really pleased.
“It was a bit of an up and down season for me but I thought I finished well and the chance to play in the Championship is very exciting.
“I scored some goals and set some up towards the end – I felt like I was getting back to where I was when I first came. If I can continue that then it will only help the team and that’s my main aim.
“As a team, we finished brilliantly and hopefully we take that momentum into next season, which I can’t wait for.”
Bowditch becomes the fifth player to pen a new deal this summer, following in the footsteps of Carl Baker, Lee Hodson, Tom Flanagan and Dean Lewington.