The 20-year-old left-back, who has made three appearances for Carlisle since joining from Hull at the beginning of August, will remain at Brunton Park until the end of November.
Carlisle caretaker boss Graham Kavanagh told the club's official website: "Conor has done really well and has settled and adapted to life in League One and his performances have reflected that.
"The challenge now is for him to maintain the standards he has set himself.
"He has two months with the club to do that and we're confident that he is going to develop and progress even more.
"He's a great lad to have around and we're all very pleased that we will be able to continue working with him."
Townsend, who progressed through Hull's academy, has had previous loan spells at Grimsby and Chesterfield.