Davies, who has appeared 363 times for Tottenham, was present for matches at Aston Villa and Chelsea before he helped with the team’s preparations before a final-day win at home to Everton.
The 33-year-old joined from Swansea in 2014.
“Tottenham Hotspur really feels like home. It’s been a huge part of my football journey and I’m grateful for what the club has given me so far in my career,” Davies told the official club website.
“It’s been difficult over the past few months, not being able to help the team on the pitch in some tough moments due to injury. So, I tried to help the boys off it as much as I could, being a voice in the dressing room and around the group, contributing in any way I could.
“My heart’s on my sleeve for this club and I’ll give everything for it.”
It was announced later on Wednesday that midfielder Yves Bissouma would leave the club this summer when his contract expires on June 30.
Bissouma joined from Brighton in 2022 in an initial £25m deal and played a key role in the club’s Europa League triumph last year, but his time at Spurs across 111 appearances has been blighted by disciplinary problems.
Mali international Bissouma was twice embroiled in off-the-field issues and caught publicly inhaling nitrous oxide, which is widely known as laughing gas, on two occasions.
Bissouma, 29, was also suspended for a game by then-Spurs boss Thomas Frank in August over repeated lateness.