The experienced Nelson will combine first team playing duties with coaching the Bees’ Under-23 squad alongside Dean Selvey next season.
The 37-year-old defender has made 75 appearances for Barnet, scoring two goals, since he joined the club after leaving Cambridge United in 2015.
“I’m really pleased to commit to my third year at the club, to commit to taking the younger boys in a coaching role and to help the club grow,” said Nelson.
“First and foremost I’m coming back as a player, but to be offered the Under-23s’ coaching role as well is a bonus and something I look forward to doing.”
Nelson is the second senior player in the Bees squad to sign a new deal this summer, with winger Jamal Campbell-Ryce extending his stay at The Hive last week.