The 29-year-old, who made his senior debut for the club in 2004, has scored 52 tries in 185 appearances.
"Tom's form over the last 12 months has been outstanding. We are all really looking forward to him continuing that and he has some great years of rugby ahead of him," said director of rugby Conor O'Shea.
"He is one of the club's original academy graduates and his willingness to work with our younger players has had a big impact on their development."
Williams added: "The opportunity to contribute to a club playing such an exciting brand of rugby with a group of ambitious and talented players made the decision to stay an easy one."
Williams can also operate at full-back.