The 22-year-old made his senior debut for the Quins last season and has already made 30 appearances for them.
"I have progressed greatly as a player since I joined Harlequins and given the quality of the coaching staff, I've no doubt I will develop further," said Wallace.
"The club has an environment that encourages young players to progress and I'm benefiting from that.
"I am proud to be part of a talented and successful squad and look forward to winning more silverware in coming seasons."
Wallace was shortlisted for the LV= Breakthrough and Land Rover Discovery of the Season awards.