Watkins, 44, also stays on for a fifth year as general manager and will lead the side's defence of back-to-back NIHL National League titles.
It will be a 13th season in charge of the side for Durham-born Watkins, a firm favourite of the Telford faithful.
His connection with the club dates back to 1996, when he first pulled on Tigers colours as a player, initially for three seasons, before returning as player-coach for the 2010/11 season. The upcoming season will feature a series of special events to mark Watkins' testimonial year.
Watkins admits he never expected to make Shropshire his home all those years ago. He said: "I’m honoured and very grateful to be awarded a Testimonial Season here in Telford and I’m very excited to kick it all off.
"This will be my 16th season overall in Telford, having arrived here after the closure of the ice rink in Durham, as a young 18-year-old and can still remember heading along the M54 for the first time and seeing the Wrekin, somewhere I now spend most of my free time, walking and biking.
"At that point, I certainly didn’t expect to have settled, married, and raised my two children here some 26 years later.
"I guess things happen for a reason, Telford is my home, I’ve made some fantastic memories here, have lots of very good friends and feel very lucky to have a wonderful wife and two beautiful children."
Watkins has coached almost 750 Tigers matches, winning four league championships, two cups and a North Playoff.
He enjoyed 10 successful seasons at Coventry Blaze prior to returning to Telford more than a decade ago – a decision he now labels a risk – but the former player has played a central and influential role in helping the lead the club to the success it has enjoyed in recent years.
"I’m delighted to return for another season In Telford, probably no surprise to anyone," Watkins said.
"I’m very happy here and feel I have the respect and support of Mike (Washburn, owner) to shape the team and club in the best way I can. At the National League level, we go into the season as back-to-back league champions but I’m sure it will be a very difficult challenge to make it a three-peat in such a competitive league.
"The new season will also see our Laidler league team head into the new season as current league champions.
"I don’t think there is a greater challenge than trying to retain a trophy at any level of any sport, you must maintain that hunger, desire, and consistency but the first job is to recruit wisely."
Washburn paid tribute to Watkins' coaching style and admits the club are focused on how to take themselves to the next level.
"I have no doubt in Tom’s unique ability as a head coach to be able to forge a roster that is capable of winning titles, leagues, and competitions – this is a matter of fact," the owner said.
"The challenge now is to move the Telford Tigers on-ice product up yet another level. I’m excited at the ideas and energy Tom has, to develop our Ice Hockey teams to that next level – and I look forward to seeing this unfold over the coming months.
"We also want to significantly improve our ice hockey club and all our off-ice products – in short, to deliver the best possible experience for anyone who touches Telford Tigers in any way.
"As returning GM Tom has a pivotal role in helping to both shape and achieve these objectives. We have come a long way over the last five years and now is the time for Telford Tigers to surge forwards again."