Lee, along with captain Lee Bullen, striker James Quinn and defender Richard Wood have all been offered new deals to stay on at Hillsborough after their promotion.
But Lee, who was injured for half of last season, has signed for two years with the option of a third on a 'pay as you play' deal it is believed.
"I am over the moon to be staying with Sheffield Wednesday and excited at the opportunity to play in the championship," he told the club's official site.
"I'm looking forward to the challenge and I can't wait for next season."
Lee was signed two years ago from Hartlepool United, and he followed Chris Turner to Hillsborough from Victoria Park.
When fit, he has been one of the most consistent performers at S6 and everyone at Hillsborough are keeping their fingers crossed that he keeps injury free.
Bullen is talking to two Scottish clubs but is waiting for an improved offer from Paul Sturrock, Quinn is sitting down with the manager and his representatives after Northern Ireland's friendly with Germany while Richard Wood is extremely close to agreeing terms.