Wallace joined the Clarets from Lancashire neighbours Preston in July 2010 and his present deal was due to expire at the end of the current campaign.
"It's what I wanted and didn't take long," the 27-year-old said in a club statement.
"I didn't want to move from the start and I am just happy to get a bit of security.
"I'm not sure really sure what would have happened with Eddie (Howe) here, because we didn't really discuss anything.
"But the new manager made it clear that he wanted me to stay. I am enjoying my football and as long as I am playing games I am happy.
"I want to play at the highest level I possibly can. The manager has come in with the same ambition, so it's a good situation."
Burnley manager Sean Dyche added: "We are delighted that Ross has agreed a new, long-term deal with the club.
"He is a valued member of the squad and I am sure he has a big part to play in our future."
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