The news means that Cameron White cannot return to Taunton as from next summer counties will be limited to one overseas player.
"I am delighted to say I have shaken hands with Justin over a contract for next season and he will be continuing as captain," Brain Rose, Somerset's director of cricket, told the club website. "It was a difficult choice with the new ruling about only one overseas player because Cameron has also done tremendous things for us. But his immediate future looks to be with Australia and the team have really benefited from having Justin's leadership on a regular basis throughout the whole of this season.
"He and his family love the area and he has obviously enjoyed his cricket with us. We look forward to another successful season with him at the helm in 2008. At the moment we are not looking beyond next season as far as Justin is concerned. We will play things by ear next summer and take it from there."