Albion announced around a month ago that they were in negotiations with the former Republic of Ireland international after he failed to make enough appearances in 2012-13 to guarantee the final season of the two-year deal he signed in April 2012.
And with the Baggies on Tuesday confirming those talks are now complete, Reid is set for an 11th consecutive Premier League campaign.
He had already written on his Twitter account: "Delighted to be extending stay at WBA. Thanks for all the positive messages last few weeks. Roll on next season!"
West Brom boss Steve Clarke is optimistic Reid can make an important contribution next season - so long as the 32-year-old is not hampered by injuries as much as he was last term.
"I'm delighted Steven has committed himself to the club for another year," Clarke told www.wba.co.uk.
"He's a good pro, has bags of Premier League experience and is a great character to have both within the squad and around the training ground.
"If he has better luck with injuries, Steven will have a big part to play here in the new season."
Reid has operated in midfield for most of his career but has been successfully converted into a right-back by the Baggies, who he initially joined on loan from Blackburn towards the end of the 2009/10 season when they sealed promotion to the top flight.
His seven-year spell with Rovers concluded with a permanent switch to Albion that summer and he also announced his retirement from international football after winning 23 caps.
In total, Reid has made 71 appearances for West Brom, including 12 as a substitute, scoring four times.
Baggies sporting and technical director (designate) Richard Garlick said: "Steven's a player of proven Premier League pedigree and is a key figure at the club - both on and off the field.
"We've been speaking to Steven and his representatives for some time as we needed to reach an agreement that suited both parties - but I'm delighted we've managed to achieve that.
"With Steven on board, we again have healthy competition at right-back after Billy Jones enjoyed a progressive season in what was his second year at this level last term."
Reid already has a UEFA B coaching licence, but is very much focused on playing for the time being and hopes he can carry on for more than just another year.
Speaking to the West Brom official website about his new contract, he said: "It's the outcome I wanted.
"I weighed everything up. My family are happy where they are, I'm happy at the football club, and I have a great relationship with the football staff and everyone at the club.
"The medical department here have been brilliant for me, they know how to manage my body - and that is another key factor in me staying.
"I did have a couple of other options here and abroad.
"I spoke to a couple of managers I have a lot of respect for and I was flattered by the interest.
"But I think all along I made it known to them my priority would be to stay at West Brom if I could get a deal that was right for me."
He added: "Hopefully I can continue for the rest of my career in the Premier League and, if I have a good season, then hopefully my stay here can be extended.
"It could be that when the time comes that I feel I can't perform at the top level anymore it is time to call it a day.
"Whether it's a year or two more at West Brom, it could then be time to hang the boots up.
"But for me the passion has got stronger.
"I've had to manage my body in a different way over the last two years, but I just keep striving to do better than the last season.
"Last season was a frustrating one and I want to prove to myself, the fans and the gaffer that I can still do it."