The agreement will keep the 32-year-old with the Eagles until the summer of 2015.
Fresh terms are just reward for a man who has proven to be a shrewd acquisition for Palace.
Delaney was snapped up as a free agent back in August 2012, following his release by Ipswich Town, but has gone on to help the capital club into the Premier League and earn further international recognition with the Republic of Ireland.
He is convinced that he is at the right place at this stage of his career, despite Palace's struggles at the foot of the top-flight table, and admits he jumped at the chance to prolong his stay.
Delaney told the club's official website: "It's really pleasing for me and something I've wanted to do. I was entering the last year of my contract here, so I've been talking to the club for quite a while.
"Obviously we've both had other things to worry about, but we managed to come to an agreement last week and I'm genuinely delighted.
"Since the first day I came through the door a little over 12 months ago, Dougie Freedman and Ian Holloway have been great to me and the fans have too.
"We had a lot of success last year and have had a difficult time this year, but I'm up for the challenge and it's something I want to be a part of."