The new deal will keep the midfielder at Lyon until the summer of 2015.
Toulalan’s previous deal was set to expire in the summer and the midfielder delayed talks over a new deal earlier in the season, due to a dip in form.
“Everyone’s been behind me after the difficult times I’ve been through,” said Toulalan.
“I feel very good in this city and it’s going very well with the team, which is the best in France even if currently we have no titles. It’s one of my goals to win more of them.
“In 2015 I will be 32 years old. I had the choice: either I extended and spend my career at Lyon or I leave. I chose to stay at Lyon and finish my career with the club.”