The 65-year-old penned a three-year deal in June 2010 as he returned to the club he both played for and managed more than 30 years previous.
In his second stint at the helm, Turner guided Town to the League Two play-off semi-finals before going on to seal automatic promotion last season - steering the Shropshire side to England's third tier for the first time since 1997.
And he has duly kept them there this season by securing a 16th-placed finish in League One.
Turner said: "As with the chairman and board, I would also like to acknowledge the significant contributions of the coaching, scouting and medical teams and thank them for all of their hard work.
"In addition I would like to give a special thank you to everyone who came to support us through the season at the Greenhous Meadow and to those who have travelled throughout the country.
"This commitment is very much appreciated. I look forward to seeing you next season."
Turner made over 350 playing appearances for Shrewsbury from 1973-1983, also managing the club between 1978 and 1984. He became Town's most successful ever boss during his initial six-year spell in charge, overseeing the club's rise into the second tier in his first season and to two FA Cup quarter-finals.
Upon the news of his latest contract extension, chairman Roland Wycherley added: "League One has seen a demanding season with so much being learnt, but whatever the challenge Graham has never failed to show determination and to express a positive attitude, attributes which have contributed to the club finishing 16th in League One, our highest position for 23 years.
"Graham is one of the most experienced and well respected managers in English football. He shares our passion to continue to strive for the success of Shrewsbury Town and achieve our ambition to play Championship football."