Berrick Barnes will play the first season of the expanded Super 15 competition with the Waratahs after new club Melbourne Rebels lost interest in the talented fly-half.
The 23-year-old had been on Melbourne's recruiting agenda but the new franchise, which joins the competition next year, withdrew its interest because Barnes only wanted a one-season deal.
Barnes' contract with the Waratahs was already signed for 2010, but he has now opted to take up a one-year extension.
The Wallaby vice-captain signed a two-year deal with the Australian Rugby Union last season to take him through to the conclusion of the 2011 Rugby World Cup.
Barnes, who has scored 47 points in his first four games for the Tahs, said while other offers remained on the table for 2011, his decision to remain in New South Wales was best for his immediate future.
"You weigh up everything that's put in front of you and in the end I know it's definitely the right decision to stay at the Tahs," Barnes said.
"I'm glad I've now made the call and I don't have to worry about it anymore."
"I've really enjoyed the culture here, thus far. It's been a tough four weeks but I feel as if the squad's moving in the right direction and it's something I feel excited about being a part of for another year."
"NSW definitely has a winning culture and there's a high expectation of success both internally and externally which drives you as a player."
Waratahs coach Chris Hickey said Barnes' impact on the squad had been immediate.
"Everyone knows what a quality person Berrick is both on and off the field so it's obvious we're really happy to have him on board again in 2011," Hickey said.
"His injury on the Wallaby tour was a real blow for him personally, but it was actually a bonus for us having him in the program much earlier than we expected to."
"As soon as Berrick joined us he slotted into the culture seamlessly and spent a lot of time in the pre-season working with the younger inside backs to help them with their development."
"It's great that he has his future sorted now and can just concentrate on his rugby."