It looked like Reid might be leaving the Hawthorns last week with his previous deal due to expire next month, but the Premier League club have now moved to secure the 32-year-old on a new contract.
Reid, who joined West Brom from Blackburn three seasons ago, was delighted to resolve his future and is looking forward to the new season.
"I am absolutely delighted to be staying, I never wanted to leave and I am happy we have reached an agreement," Reid told Sky Sports.
"I am looking forward to reporting for pre-season and hope we can build on last year's outstanding achievement in finishing eighth in the Premier League."
The 32-year-old former Republic of Ireland international started 11 Premier League games for Steve Clarke's side last season.