The 22-year-old won eight international caps last year, seven as a replacement, in a breakthrough season.
"It's my home town and I've lots of friends here," he said.
"From a rugby perspective, the way that the club's been moving forward over the last year or so, there's no doubt in my mind the best decision is to stay."
Hidalgo-Clyne, a prolific goal-kicker who started as a fly-half, is a product of Edinburgh's academy and the Scotland youth squads.
He made his professional debut in 2013 and his Scotland bow in last year's Six Nations opener against France in Paris, going on to be part of the World Cup squad last autumn.
"I am delighted that Sam will continue his progress with us," said Edinburgh head coach Alan Solomons.
"He is an exceptionally talented young player who has a great future in the game. I enjoy working with him and am pleased that I can continue to do so."
Hidalgo-Clyne is expected to be included in Vern Cotter's Scotland squad - set to be announced next week - for the Six Nations starting on 6 February.
Scotland scrum-half Sam Hidalgo-Clyne has committed himself to Edinburgh by signing a new deal with the Pro 12 club until May 2018.