The 29-year-old, who has one senior England cap, notched 20 goals in the Sky Bet Championship for the Foxes last season to help the club claim the title.
He becomes the latest key player from that promotion campaign to put pen to paper on a new Leicester contract this summer, following the likes of goalkeeper Kasper Schmeichel, defender and captain Wes Morgan and midfielder Danny Drinkwater.
Nugent told lcfc.com: "I'm delighted to have signed for two years and I'm really looking forward to testing myself with the rest of the squad in the best league in the world.
"Last season was the best of my career in terms of goals and assists, but I wouldn't have managed it without the lads around me so I'm really pleased the squad has been kept together
I think we've got a great chance of doing well in the Premier League."
Leicester manager Nigel Pearson said: "David's contribution to the squad goes a lot further than the goals he scores or the assists he provides.
"He's a striker that works incredibly hard for the team and helps us to set a tempo that other teams found difficult to cope with last season.
"He's a hugely popular, infectious character in the dressing room and a really important part of this group, so I'm delighted that he'll be staying with us in the Premier League."
Nugent has been Leicester's leading scorer in all three seasons since he joined them in 2011 following a four-year spell with Portsmouth, accruing a total of 54 goals in 148 appearances for the Foxes.
He has Premier League experience from his time with Portsmouth and Burnley, who he played for on loan from Pompey.
Source : PA
Source: PA