The Northern Ireland international midfielder has put pen to paper on a new two-year extension, a deal which will tie him to Home Park until the summer of 2007.
"We're delighted," said Argyle boss Bobby Williamson.
He is a regular, current international and the type of player we want here."
Capaldi has become a popular figure at Argyle since his move to Home Park from Birmingham City back in the summer of 2003.