The 34-year-old started the 2010-11 season in League One with Carlisle before moving to the Madejski Stadium and was an integral part of the team that reached the Championship play-off final where they lost to Swansea.
However, in 2011-12 they went one better, securing promotion as champions.
"It's a dream come true to go back to the Premier League," Harte told the club's official website. "Two years ago the manager took a chance on me and gave me the opportunity to come to a fantastic club like Reading.
"And I've had two of the best years of my career here. I'm absolutely delighted. Now that it's all sorted, I can go away and enjoy the summer, thoroughly look forward to next season and come back raring to go."
Manager Brian McDermott said, "It's a fantastic story, if you consider that two years ago Ian had been written off in certain quarters, and yet now he is a Premier League player again."
"That tells you everything you need to know about the person, the player, his resilience, his character, his determination and his quality.
"He still has that burning desire in training every day to play at the highest level. So I'm delighted that Ian has signed a new contract."