The Red Bull Junior and Honda Formula Dream Project driver, who finished fifth in the standings in 2022, will stay with the French outfit for his second campaign.
Iwasa took feature race victories in France and Abu Dhabi, along with two pole positions and a further four podium finishes.
He will partner Arthur Leclerc, who moves up from FIA Formula 3, where he finished sixth this season with Prema.
Iwasa said: “I’m really happy with my first F2 season, I learned a lot during the year and we were able to improve at each race.
“It’s a great feeling to continue with DAMS for another year, I feel at home in the team and we work well together.
“Everyone was on the same page and that helped us secure plenty of strong results.
“It’s going to be helpful to come into the new campaign in a familiar environment, along with my experience of several tracks that were new to me in 2022.
“My target is to challenge for the F2 title in 2023. We know we have the potential to achieve it, but we’re not looking too far ahead yet, instead concentrating on being ready for the start of the season.
“Thanks to DAMS for their faith and support and I can’t wait to get started in 2023!”
Team owner Charles Pic said: “We were all impressed with Ayumu’s performances in 2022, especially with the victories at Paul Ricard and Yas Marina, so we were very keen to keep him for 2023.
“It’s great for us to continue our relationships with Red Bull and Honda, they trust in our methods and we’ll do our best to succeed together.
“Ayumu proved that he has the potential to fight for the title, he was a major competitor in the second half of the season and we hope he can use this experience to kick on in 2023.
“We’ve got a strong line up with Ayumu and Arthur, so we’re hoping they can push each other to improve throughout the year.”
