The Tar Heel grad averaged 6.8 points and shot 46 percent on three-point attempts in 69 games last season.
"We're really happy to have Shammond back," Sonics General Manager Rick Sund said in a press release. "The progress he has made in his two seasons here has really helped this team, and he continues to be one of the best shooters in the league."
Terms of the contract are unavailable.
Williams was drafted in 1998 by Chicago with the No. 34 pick, before being traded to Atlanta. After appearing in two games with the Hawks in 1998-99, he headed to Turkey for a season. Upon returning, Williams earned a spot on the Sonics roster with an impressive performance in the 1999 NBA Summer League. He's averaged 6.1 points over the last two seasons with Seattle.
In last season's first-round playoff series, Williams posted 10.2 points, 3.6 assists and shot an impressive 64 percent from beyond the arc.