The 33-year-old joined last summer from Chelsea and has penned a new deal to 2027.
While he is yet to feature in a competitive match, Bettinelli has provided vital support and competition for Gianluigi Donnarumma and James Trafford.
“It’s a great feeling knowing I’ll be at Manchester City for another season. It’s a real privilege to be here and I’m learning so much every day,” he said.
“The staff have been superb - I have felt really supported since day one.
“My job is to be the best I can be, push our other goalkeepers and ensure that, as a group, we are improving. I think we are definitely doing that.”
“Marcus has been a really good signing for us,” said Director of Football Hugo Viana.
“He’s a top goalkeeper and a brilliant person. He’s brought ideas and energy to our goalkeeping department and we are delighted he is staying for longer.
“It’s vital for any top club to have a thriving goalkeeping department and Marcus is a big part of ours.”