The French superstar was set to leave PSG this summer and his contract was due to expire at the Parc des Frances.
Mbappe is said to be on the verge of a move to Real Madrid on a free agent basis.
On Monday PSG held a press conference with Mbappe, who had changed their minds.
“Everyone knew I wanted to leave last year and was convinced that it was the best decision at the time,” Mbappe told the media.
“It’s been a few years, but now it’s different and the context is different. The same goes for sporting terminology and personally I was free to decide and I know how important that is in France.
“It is my country where I grew up. I have always lived here and it was not right to leave my country.
“He has a sentimental side. It is my country.
“The sports project has also changed. It made me want to stay because I think my story isn’t over yet.
Mbappe also sent a message to Los Blancos fans who think they’ll see him in his own color next season.
“A message to Real Madrid fans? I want to say thank you for always accepting me as one of them,” Mbappe said.
“I understand their disappointment, and I hope they understand that I have decided to stay in my country.”
Mbappe finished the season as the top scorer for four consecutive seasons in the league with 28 goals.
His PSG record is currently 168 goals and an additional 33 strikes from the club would usurp Edinson Cavani as the Parisian record scorer.
“I want to thank him for giving me the opportunity to play for Madrid, which I have been a fan of since childhood.”