The 33-year-old has signed a new one-year deal, extending his stay with his boyhood club until the summer of 2014.
A firm favourite with the fans, Dunn had a strong end to the 2012-13 season, scoring a memorable injury-time equaliser against Burnley, a strike that was voted Rovers' Goal of the Season.
Manager Gary Bowyer had made no secret of his desire to retain the stalwart's services and is delighted to see him sign up for another season.
“The quality and experience he brings is invaluable to us," said the Rovers boss. "We all know how much this club means to him.”
A former graduate of the club's youth setup, Dunn made his Rovers debut as an 18-year-old in September 1998. He would quickly progress to be one of the standout midfielders in the country, earning international recognition with the senior England side in 2002.
Aside from a four-year spell with Birmingham City, this new deal ensures Dunn will have spent more than 13 years as a professional at Ewood Park.