Keeping the Welsh record try-scorer, who has touched down 27 times in 71 Magners League appearances, will be a major boost to the Ospreys.
The reigning champions have recently lost Gavin Henson while James Hook will make the move to Perpignan in the summer.
"It's just a case of me putting pen to paper, said Williams, 33. "I'm looking to stay at the Ospreys for two more years.
"With the injury and not being available at training, it's just been put on the back burner.
"But I'm still enjoying myself at the Ospreys, I still want to play for them and they want to re-sign me. It's just a case of signing it."
The wing wizard is currently with the Wales squad preparing for the RBS 6Nations.
And he is eager to get back on the pitch in the showpiece tournament after missing almost two months of action after dislocating his shoulder against South Africa in January.
"It was always touch and go and I'm lucky to be here - I'm three weeks ahead of schedule," added Williams.
"This is probably my last year as an international and I need to make sure I'm at my best.
"Playing England's massive; the Six Nations is the best International tournament you can play in. It has the best atmosphere, the best grounds and everyone waits 12 months before going at it all guns blazing.
"It's a massive game for us with all the tradition and the love hate relationship with England."
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