Hammons, the 7-foot center, had explored the NBA Draft as a possibility, but will return to Purdue for his third season on campus.
"I've decided to stay and continue my education here at Purdue, and there are a lot of goals I still want to accomplish with my teammates on the court," Hammons said in a statement. "First and foremost, we want to get back to the postseason and compete for a Big Ten title. I feel like we owe our fans some better basketball. Purdue is a special place with a lot of great people and I'm excited to continue my education here and be a part of a great community."
Hammons met with Purdue coach Matt Painter on Wednesday to discuss the decision.
"Coach Painter has been fantastic during this process with me," Hammons said. "We have gone over every report, and I have a good feel for where I stand and what I need to improve on. I know I have things to work on, and there is no better place for me to develop more as a player and as a person."
"We are excited that A.J. has decided to remain in school and continue his education and career here at Purdue," Painter said. "He is fully dedicated to helping us improve and he will be an instrumental piece for our program during the 2014-15 season. We look for continued development from A.J. and expect him to take on a significant leadership role next season."
Purdue has just five scholarship players on its current roster, but will welcome five freshmen into the program.
Hammons was projected to be a late second-round pick, Painter said on Wednesday. At Purdue, he will work in with true freshman center Isaac Haas.