Pettitte's decision marks the second major move of New York's offseason, following last week's re-signing of right-handed starter Hiroki Kuroda, and gives the Yankees a pair of battle-tested arms to slot behind staff ace CC Sabathia.
The game's active wins leader with 245 victories, Pettitte will earn a base salary of $12 million for his services, plus potential awards bonuses. In order to make room on the 40-man roster, New York designated catcher Eli Whiteside for assignment.
Though Pettitte was limited to just 12 regular-season starts in 2012 due to a fractured left ankle he sustained in late June, he proved that he still could compete at the highest level, coming out of retirement to go 5-4 with a 2.87 ERA in 75 1/3 innings.
"I definitely think that if I would have pitched a full season and thrown 200 innings, that I definitely wouldn't feel as fresh and physically feel as good as I do right now," Pettitte said. "Obviously, I feel like that helped lead me to a quick decision."
Because his competitive juices haven't been fully exhausted, Pettitte said he also isn't ready to lock into the idea that 2013 will be his final season.
"Whenever I shut it down again, that is going to be it," said Pettitte, who retired for the first time after the 2010 season. "It wouldn't be smart for me to just say right now that I would never play next year. I just don't think that would be smart, because I have no idea."
Pettitte said that he didn't begin seriously preparing for the '13 season until about Nov. 16, when his oldest son, Josh -- a right-handed pitcher -- committed to attend Baylor University.
"When I got home, it was straight nothing to do about me," Pettitte said. "It was all about trying to figure out Josh, and for the first major decision in his life, I wanted to just be there for him."
The Yankees were sure that Pettitte had something left to offer; in fact, shortly after the postseason ended, Pettitte said that general manager Brian Cashman told him, "I don't know what you're going to do, but as soon as you decide, we want to sign you back."
"That's obviously huge for a player," said Pettitte, who also heard encouragement from Sabathia, Derek Jeter and Mariano Rivera. "For Cash to reach out to me and tell me that, you feel like this organization feels pretty good about bringing you back."
After returning from the broken ankle, Pettitte went 2-1 with a 1.62 ERA in three September starts and posted a 3.29 ERA in his two postseason starts. Despite not adding to his total in October, he remains the active postseason wins leader with 19.
"Knowing now that I have the rest of this offseason to train and get ready for a full season, I expect to be healthy," Pettitte said. "I expect to make my 34 starts or however many the Yankees want me to make. I think I can do that. If I didn't, I wouldn't try to do this again."
The announcement frees the Yanks to begin looking at other areas of importance on their winter shopping list.
New York had been focusing on pitching early in the offseason, and the team is still working toward an agreement with all-time saves leader Rivera, who will turn 43 on Thursday and is expected to agree to a one-year contract in the near future.
The Yankees also have interest in retaining catcher Russell Martin, who is said to be drawing serious interest from the Pirates, among other teams, and they could also seek to bring back outfielder Ichiro Suzuki after his strong second half.
Pettitte expressed confidence that the Yanks will be able to field a World Series contender in 2013, which also played into his quick decision to continue pitching.
"I think we're good enough to go all the way, I really do," Pettitte said. "I'm at the point where if I didn't feel like we had a chance to win it deep down, I wouldn't do this. I feel like we've got a certain group of guys that are still there and that know how to win and know how to get it done, and we can go do that."