The 35-year-old Northern Ireland international was out of contract following the 2014/15 campaign but remains a lynchpin of the side and a hugely popular figure with the fans.
He made 31 appearances last season as the Baggies finished 13th in the Barclays Premier League table.
“McAuley, who joined the Baggies on a Bosman free transfer back in 2011, has committed his future to The Hawthorns by signing an extension, which will begin on July 1,” a statement on the official website read.
“The fans’ favourite has played 138 times for Albion, scoring eight times.”
Formerly with Lincoln, Leicester and Ipswich, McAuley has also appeared over 50 times for Northern Ireland, and started Saturday???s 0-0 Euro 2016 qualifier with Romania at Windsor Park.