Etheridge, who came through the club's academy, will stay at Craven Cottage until 2014 with the option of a further year extension.
The 23-year-old joined Fulham in 2006, after three years at local rivals Chelsea, and he spent three months on loan at Bristol Rovers earlier this season, but was recalled to take the number two role to Mark Schwarzer.
Etheridge said: "I'm delighted to have signed for another year at the Club as it's been a special place for me since I joined.
"There's a fantastic set up here for me to train and really hone my craft and, with Mark Schwarzer guiding me, I really couldn't ask for a better mentor or opportunity.
"I'd like to thank the chairman and, of course, all of the supporters who've encouraged me throughout my time here and I look forward to at least another year."