The Scottish international has put pen to paper on a deal which will keep him at The Hawthorns until the summer of 2016.
Morrison, who joined the Baggies from Middlesbrough five years ago, has played a major role in establishing the club in the Premier League.
Manager Steve Clarke said: “After strengthening the squad during the transfer window, it’s equally important to hold onto your best players and I’m delighted James has signed a new deal.
“The new contract is fair reward for James’ hard work and efforts.
“He’s been here a number of years now and has always been one of the key players.
"This is a good message to send to the rest of the squad, that if you do well and keep improving you will be rewarded.
“It’s also a big coup for the club because I’m sure that if James was on the market, there’d be a few clubs interested in him.”