It will be the first time in the championship that Karthikeyan will represent the same team, the Honda-powered Nakajima Racing in this case, for a consecutive year.
Toyota has dominated the championship of late but Karthikeyan said his car showed glimpses of speed in what otherwise was a forgettable last season when he failed to score a point for the first time in four years.
"Last season was a forgettable one to be honest. Though towards the end of the year, I did feel the car was quick. We hope to build on that and I realise that I have to be at the top of my game. It is a super competitive championship," Karthikeyan told PTI.
With the confirmation today, the speculation over his switch to Super GT 500 also ended. The 40-year-old had tested the Super GT machinery for the first time in December when he was joined by 2009 F1 champion Jenson Button at Malaysia's Sepang International Circuit.
Super Formula, erstwhile known as Formula Nippon, is Japan's premier single-seater series since 1973. It is also the fastest single-seater series outside of Formula One.
Other popular names in the field include WEC World Champion and Le Mans 24-hour winner Andre Lotterer, former F1 drivers Kamui Kobayashi and Kazuki Nakajima.
Recently, talented young drivers like Stoffel Vandoorne and Pierre Gasly opted for Super Formula to hone their skills before moving up to Formula One.
The series run on six purpose-built race tracks, including three F1-spec venues.
The 2018 season will kick off on March 11 with the pre- season testing at Suzuka Circuit and the series opener is scheduled in April.