The 31-year-old was let go by the Western Bulldogs at the end of last year and recruited to the Demons to add some maturity to their young midfield.
He played the first 13 games of the season before suffering a leg fracture against North Melbourne, which will see him miss at least another three to four weeks.
Josh Mahoney, the club's manager of football operations, said Cross had delivered plenty in his short time with the Demons.
"We brought Daniel to the club because we knew he could play a role for us on the field," he told melbournefc.com.au.
"He also had a reputation for elite preparation and we thought he could also add some leadership and help out our younger players.
"We're very happy with what he's done and we’re pleased to offer him another contract."
Cross won the Bulldogs' best and fairest in 2008 and was runner-up a further four times and third on one occasion during his 12-season and 220-game career with the club.
The news he will play on follows Melbourne's recent re-signings of important young players Jesse Hogan and Tom McDonald, while wingman Dom Barry also inked a two-year deal this week.
