Wilson arrived at the Milton Keynes club, formed when Wimbledon were controversially moved 80 miles north of their traditional home, with the side in the middle of a relegation battle last season.
He guided them to safety in dramatic fashion, with the side climbing out of the bottom four on the final day of the season to send Torqay crashing back down to League Two.
Chairman Pete Winkleman said: "Danny is one of the brightest managerial talents in English football.
"I'm convinced we are on the brink of another momentous season and Danny's involvement will be the key factor."
Wilson added: "With Pete and the people behind the scenes I really feel the foundations are in place for a secure future for the club.
"I believe that this club will be taken further forward and provide the stability for something really big in Milton Keynes."