The 26-year-old's form for Rovers since joining in July 2011 has seen him recognised at senior international level for Wales, although he is yet to earn his first cap.
After rejecting the lures of Championship suitors having been out of contract this summer, Fon Williams will now remain with Tranmere as he looks to add to his 91 appearances for the League One club.
Manager Ronnie Moore said: "Owain has had two really good seasons with Tranmere so I'm pleased he will be staying with us.
"He's turned down good offers from the Championship to stay with us, which shows how committed he is to doing well here.
"He's one of the best goalkeepers in League One and has been unlucky not to have won his first cap for Wales.
"He's a big favourite with the fans here and keeping him at the club is a big boost for the coming season."