The 28-year-old led Edinburgh to a record second place finish in the Magners League and has also captained Scotland to Calcutta Cup success in 2008.
During his lengthy association with Edinburgh, Blair has recorded 125 appearances and contributed 12 tries - underlining his importance to the team.
Blair said: "I'm pleased to have signed a new deal. Edinburgh are an ambitious team capable of challenging for honours - both in the Magners League and in Europe.
"I'm excited about playing a part in the continuing progress and development of Edinburgh.
"I was honoured to be asked to lead the side at the start of last season and now I want to help Edinburgh to challenge for a play-off spot.
"This is my eighth season at Edinburgh and I've thoroughly enjoyed my time here.
"I've lived in Edinburgh for my entire life and I love pulling on the jersey."
Head coach Rob Moffat welcomed the news and highlighted Blair's importance to Edinburgh.
Moffat said: "We're delighted; Mike is the captain of our club and a world-class player.
"Unfortunately Mike hasn't been available for us since November because of injury.
"But we are looking forward to seeing him back fit again to help Edinburgh enjoy a strong finish to the season."
Chief executive Nic Cartwright believes the fact Blair has committed himself to the team underlines Edinburgh are ambitious and determined to build on the growth achieved; both on and off the pitch.
Cartwright said: "Mike is a key player and he has been an excellent captain and a tremendous ambassador for Edinburgh over the past eight seasons.
"Edinburgh has grown over the past two seasons and we have enjoyed an increase in our average attendance.
"Mike's decision to sign a new contract further illustrates our commitment to continue that growth, both on and off the pitch.
"Like half of our squad, Mike is Edinburgh born and bred and that helps to develop a strong bond between our players and the community here in the city.
"The next two seasons will be an exciting time to be associated with Edinburgh and we are pleased to have Mike on board as we continue the journey forward."
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