The Irishman, who was due to come to the end of his current deal this summer, has committed his services to the newly-promoted Premier League club until 2013.
"It's a dream come true to go back to the Premier League," Harte told the club's official website. "Two years ago the manager took a chance on me and gave me the opportunity to come to a fantastic club like Reading. And I've had two of the best years of my career here.
"I'm absolutely delighted. Now that it's all sorted, I can go away and enjoy the summer, thoroughly look forward to next season and come back raring to go."
The Royals' manager Brian McDermott added: "It's a fantastic story, if you consider that two years ago Ian had been written off in certain quarters, and yet now he is a Premier League player again.
"That tells you everything you need to know about the person, the player, his resilience, his character, his determination and his quality. He still has that burning desire in training every day to play at the highest level. So I'm delighted that Ian has signed a new contract."
Harte made the switch from Carlisle United to the Madejski Stadium in 2010.