"I've got two years left in me as a player and I'm looking forward to it. I want to go out on a high, and for that to happen we all have to work hard as a group and do well for the Ospreys," said the 34-year-odl Williams.
"I've never wanted to go anywhere else, this is where I'm happiest, and it's where I want to finish my career. It's like a family at the Ospreys and I'm a part of the furniture here really.
"I've been here a long time now, since the beginning, and I was at Neath before that along with a lot of players who have gone on to become massive Ospreys legends.
"There is a lot of change taking place here at the moment and it's an exciting time for everyone. During the Six Nations it was great to see some of the younger Ospreys really step up to the mark.
"There have been some great performances in the backs from the likes of Ashley Beck, Rhys Webb, Hanno Dirksen and Tom Prydie. It's at times like that when you really want young players to show what they can do and these boys really stepped up, and it was good to watch.
"They don't want to just be involved when players are away; they want to establish themselves in the team permanently. I'm excited about continuing to work with these guys and I'm at the stage of my career when I think I can give something back to them.
"I want to help them develop, but I know I'm going to have to fight for my place as there are some great players in my position, experienced ones and youngsters who have really come on this year. Nobody is going to want to just hand over the jersey, and that makes it a good situation for the Ospreys."
Williams, who was originally signed for Neath from Amman United by Ospreys Managing Director Mike Cuddy in 1998 and is one of the 'originals' who made up the Ospreys' first regional squad for the 2003/04 season, has signed a deal that will keep him at the Liberty Stadium until the end of the 2012/13 campaign.
Still one of the deadliest finishers in the game, Williams has pulled on the Ospreys shirt on 127 occasions to date, scoring 276 points. His tally of 54 tries for the region puts him way in front of the competition as the all-time Ospreys try-scorer, 17 ahead of Nikki Walker in second place, with Tommy Bowe a further six behind.
His Ospreys debut came against Leinster at The Gnoll in late November 2003 following that year's Rugby World Cup. His first try for the region came a week later in a Heineken Cup tie against Leeds.
"This is fantastic news for everybody involved with the Ospreys. This is the eighth season that I have worked with Shane, and he still does things on the pitch that amazes everyone around him - coaches, players and fans alike," said Ospreys head coach sean Holley.
"Over the last eight seasons we've seen him mature as a person and a player, and he is always keen now to offload some of his experience onto the younger players. He is a real asset to the Ospreys on the pitch and behind the scenes and I've no doubt that he will continue to serve the region well over the next two years."