Murphy was rewarded with the new deal by manager Mick McCarthy after scoring 13 goals last season, and he has admitted that his minimum target is now to help the side secure a playoff spot in the Championship.
"I'm really enjoying my football here so I'm obviously delighted to have signed a new contract," the 31-year-old told the club's official website.
"I've said before, Ipswich Town feels like home for me - both on and off the pitch. My family love the area and that's very important to me.
"We are making progress as a football club and the challenge now is to continue that next season and hopefully get into that top six. That's the target."
Ipswich finished four points outside the playoffs in ninth last season.