The 38-year-old joined the Amlin Challenge Cup finalists after the Rugby World Cup in November last year, ending 14 seasons with Wasps.
Shaw is part of a strong English contingent at Toulon including Jonny Wilkinson and Steffon Armitage, who was recently named the Top 14's player of the season by Midi Olympique.
Toulon have strengthened their formidable squad further for next season, signing England international trio Andrew Sheridan, Nick Kennedy and Delon Armitage.
Shaw's new deal ties him to the ambitious club until June 2013.
Toulon finished the Top 14 regular season in third place and host Racing Metro in the play-offs on May 26.
Shaw will be back in Twickenham on Friday when Toulon tackle Biarritz at The Stoop after qualifying for their second Amlin Challenge Cup final.