The 29-year-old midfielder's initial one-month stay with Town is due to end after Saturday's game at Derby, but new Royals manager Nigel Adkins is happy for him to remain at Portman Road.
Tabb joined Reading from Coventry in January 2009 and his contract at the Madejski Stadium is set to expire this summer.
Ipswich boss Mick McCarthy told the club's official website: "Jay's loan has been extended until the end of the season.
"I spoke to Nigel Adkins and he was happy for Jay to stay here. They've got a call-back option on him but I don't think it will be used, not unless he's going back there to play.
"I like him as a player. He's a real grafter, he's versatile and puts in a shift for me so I'm delighted that he's staying."
Meanwhile, Ipswich have revealed that youngsters Ronan Murray, Cormac Burke, Joe Whight, Jack Ainsley and Gunnar Thorsteinsson will all be released in the summer.