The 27-year-old native of Kyiv, Ukraine tied a career-high in goals (21) and established new personal bests in assists (24) and points (45) in 71 games this season.
The six-foot-four 220-pound left-winger added 63 penalty minutes and finished third on the team with a plus-minus rating of plus-8. He'll make $1.575 million next season, $2.24 million in 2008-09 and $2.5 million in 2009-10.
Ponikarovsky has 120 career points (54-66) in 268 games with Toronto. The Leafs selected him in the fourth round (87th overall) of the 1998 draft.