The 25-year-old was one of a handful of first-team regulars who opted to remain at the club after Rangers were consigned to liquidation in the summer.
Gers boss Ally McCoist said: "I'm delighted, absolutely thrilled. Hopefully there will be some positive news about that rather than some of the negative stuff that wee Temps (David Templeton ) got when he signed.
"Lee has been a really solid citizen since he came here.
"He has been exactly everything we thought he would be - strong, totally committed and with no shortage of talent down the left-hand side.
"Him extending his contract is a real boost for the club and everybody.
"I think it's a thank you to the fans."
McCoist added: "He has shown a level of commitment since he has been here and he has extended that level of commitment so we are delighted.
"It should be noted and mentioned that there has been plenty of coverage of the lads who have left. That was their decision.
"It should also be noted that the first person to say he was up for the cup for staying was Lee Wallace. That shows you the kind of character he is."