The 32-year-old Scotland international arrived at Celtic Park last summer and proved a worthy replacement for Fraser Forster.
His performances on the domestic and European stage earned him a recall to Gordon Strachan’s Scotland squad.
Craig told the club’s website: “I am absolutely delighted to extend my contract with Celtic, such a fantastic football club. I have enjoyed my first year immensely at Celtic.
“It has been great to enjoy success already and I’m looking forward to giving everything to bring more good times to our supporters who have given me such a tremendous welcome to the club.”
His performances last season were pivotal in another successful season for the club as they won the League and League Cup. He was also voted the Scottish Football Writers’ Player of the Year.
Celtic manager Ronny Deila added: “This is brilliant news and we’re all delighted that Craig has extended his contract at the club.
“He was my first signing as Celtic manager and since he joined us last summer, he has been an important member of the squad and he’s made a great contribution to our success.
“Craig’s a top-class goalkeeper and we’re lucky to have him here at Celtic.”
Gordon started his career at Hearts in 2000 and moved to Sunderland for £9m in 2007 before heading to Celtic last summer on a free transfer.