The defender has been part of the fabric at The Hawthorns since 2010 when he joined from Rochdale.
Last season, Dawson, who can play in central defence or as a full-back, racked up 37 Premier League appearances and contributed four goals.
The 27-year-old looks set to be a key player in Tony Pulis's team once again as he has started both of the Baggies' league fixtures in the current campaign.
After putting pen to paper on his new contract, Dawson told the club's official website: "I've always felt very settled here and I'm delighted to have reached this agreement.
"It has been quite a journey so far but I still feel there is a lot more of the journey to come. I've watched the club come through a challenging spell and like to feel I have played my part in helping us improve, step by step.
"I try to be consistent and play my part for the team, but it never gets any easier at this level and as a footballer I know I've got to keep improving. That's my target every day and every game."
West Brom's next game is against Stoke City at home this Sunday.