Last season’s Championship Golden Glove winner with 24 clean sheets, Ruddy has been rewarded for his fine performances between the sticks for Wolves.
A big influence in the dressing room, the goalkeeper boasts more than 400 career appearances, the majority of which were made during a seven-year stint at Norwich City.
The 31-year-old moved to Molineux in 2017 and played in all but one Championship match as Wolves were promoted to the Premier League.
Ruddy enjoyed his first outing of the new campaign on Tuesday evening, keeping a clean sheet as Wolves won 2-0 at Sheffield Wednesday in the Carabao Cup.
Sporting director Kevin Thelwell said: “John was pivotal to our promotion campaign last season, and his clean sheets and consistent performances rightly earned him a spot in the Championship team of the year.
“With Carl’s diagnosis a big blow to everyone at the club last summer, John signed for us under difficult circumstances, but his professionalism was evident throughout and his experience of promotion from the Championship with Norwich invaluable.
“John quickly became a well respected member of Nuno’s squad and we are delighted that he has signed a new deal.”