The 26-year-old, who joined from Leicester City in 2008, will now remain at Molineux until the summer of 2016.
"I'm delighted to have signed," Stearman told the club's official website.
"It's been going on for the last few weeks and I'm happy that we've got it over the line and I'm really looking forward to next season now.
"There was never any doubt from me about wanting to stay here. Obviously I was coming to the end of my contract so I was able to speak to other parties but once the gaffer had initiated that he wanted me to stay I was always more than willing."
Stearman made 40 appearances for Wolves last season as the club won promotion from League One.