Edwards was the Boilermakers' MVP and leading scorer as a sophomore with 18.5 points per game.
His return gives coach Matt Painter a major building block on a roster that will need to replace four senior starters, three of whom averaged double-digit points in their final collegiate season.
"Obviously, we are excited that Carsen will come back to Purdue after going through the draft process," Painter said in a statement released by the school. "He went through several workouts and participated in the NBA combine and received numerous evaluations of his game. This process will only help him as he continues to grow as a player and as a leader."
Painter first shared the news of Edwards' return at a "Boilermakers on the Road" fan event Tuesday evening.
The 6-foot-1 guard from Texas emerged as an All-Big Ten player during his sophomore season while helping to propel Purdue to the second weekend of the NCAA tournament. He told the Lafayette Journal & Courier that he saw himself as "a long way" from playing at an NBA level after declaring for the draft several months ago.
Edwards worked out for several NBA teams and received a late invite to the NBA draft combine before making his decision to return to school.
Purdue freshman Nojel Eastern also decided Wednesday to opt out of the NBA draft process and return to school. He played as a backup during his first year with the Boilermakers and could partner with Edwards next season.
"I want to thank the teams that gave me the opportunity to work out for them," Eastern said. "I learned so much and took away a lot of knowledge that can help me reach this level. The feedback I received from the evaluations can help to take the next step to become a better player."