The 19-year-old flanker enjoyed a memorable season as he made his Super Rugby debut against the Brumbies before going on to help the Reds claim the title.
On top of that, Gill enjoyed domestic success as club side Sunnybank won the 2011 Hospital Cup and Strategic Airlines Queensland Premier Rugby crown.
"2011 has been a dream year for me and I'm really excited about next season and the challenges that lie ahead," Gill said.
"I've got big aspirations for the future and I believe being at the Queensland Reds is the best place to achieve my goals."
Reds coach Ewen McKenzie believes that there is much more to come from Gill.
"There's no denying Liam is one of the most highly touted young talents in Rugby at the moment and we're confident the environment at the Reds is the best place for him to continue to maximise his playing potential," McKenzie said.
"He has a big future ahead of him and to see him already offer so much on the playing field at such a young age is exciting for the team and our fans."