The 30-year-old's existing deal was due to expire in the summer, but the club offered him an extension earlier this month.
Lilley has signed a one-year deal with the option of an additional 12 months.
Killie boss Jim Jefferies was delighted to sort out the future of the former Aberdeen man.
"It's great to have got David for next season. He's had his injury problems this season but since he came back into the team we have done a lot better," said Jefferies.