Terms were not disclosed.
Bogues, at 5-foot-3 the shortest player in league history, averaged 5.1 points and 3.7 assists in 80 games last season, his first, with the Raptors.
The 35-year-old veteran of 13 NBA seasons led the league in assist-to-turnover ratio (5.07) last season and is the league's all-time leader in that category (4.70). He was tops on the Raptors in assists in 16 gamess and the club had an 11-1 record in games in which he scored 10 points or more.
"I'm thankful for the opportunity to return to Toronto," said Bogues, who signed with the Raptors as a free agent last September and became an instant hit with the Toronto fans. "I had a wonderful time last season."
Bogues, a first-round draft pick by Washington in 1987 out of Wake Forest, ranks 11th in the NBA in all-time assists with 6,721 and is fourth among active players.
He owns a career regular-season average of 7.7 points and 7.6 assists per game.
"Muggsy is a great competitor and was a key performer for us last season, playing an instrumental part in a number of our wins," said Raptors general manager Glen Grunwald. "He also provided strong leadership in helping us to our finest season and our first playoff appearance."
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