"It's always nice to sign a new deal, now I've got to push on and show all the Reading fans what I can do," Morrison told the club's official website.
"I'm improving every day and I think if the manager was to call upon me I'd be ready. Since I've been here the gaffer has given me his backing, I know he and the coaching staff believe in me which gives me a load of confidence."
Royals boss Brian McDermott is also delighted with the deal and believes the player has a bright future at the club.
"Sean is a player who went out on loan and did really well for us - he's got the tools to work at his game and be a really good centre half," he added.
"If he keeps working and keeps doing what he's doing he'll be a very, very good defender. I'm sure he will be."