The running back confirmed terms of the deal to the Associated Press on Friday.
"It's part of the business," Jackson told reporters. "I've said that from the beginning that, even in 2004, I wanted to retire here. This organization gave me the opportunity to live out a dream.
"In 2008 they extended me and at the end of the season we'll see what happens with me. But something is happening here and I want to be a part of it."
The three-time Pro Bowl player is the franchise's career leading rusher and the senior Ram after getting drafted in the first round in 2004. The Rams signed two other core players, defensive end Chris Long and middle linebacker James Laurinaitis, to long-term extensions earlier this summer.
Jackson has seven straight 1,000-yard seasons, the longest active streak in the NFL. He's making $7 million this season and would make $7 million in 2013, too, and must notify the team by early February if he wants to void the deal.
"We want to have Jack back," coach Jeff Fisher said. "We want him to be a part of our future. Jack is one of the major faces of this franchise and we'd like to give him an opportunity to finish his career here."
Jackson has been slowed by a groin injury much of this season but took a heavier load in Thursday night's victory over the Cardinals with a season-best 76 yards on 18 carries for a 4.3-yard average. He leads the Rams with 271 yards rushing and a 3.5-yard average.