Simpson was made skipper in January and has enjoyed a superb season in League One following the club's promotion 12 months ago, scoring six goals in 48 appearances from central midfield.
The 26-year-old told Crawley's official website: "I'm absolutely delighted to have signed the contract and committed myself to the club for the next two years.
"I have had two fantastic years at the club and was desperate to stay because I really believe the club can keep progressing and I want to be part of it."
Reds manager Richie Barker added: "It's great news for all concerned.
"We really wanted to keep Josh as he is an integral part of what we are trying to achieve going forward so I am delighted to have secured his services for the next two years."