Moutinho’s current deal was set to expire at the end of this season.
The 33-year-old joined Nuno Esperito Santo’s men from AS Monaco at the start of last season for £5m and has been an ever-present for them in the Premier League.
Moutinho helped Wolves to seventh place in the league last season, qualifying for the Europa League in the process and was voted as the fans’ player of the season.
Moutinho put pen-to-paper after scoring a sumptuous free kick in Wolves’ 2-1 away win at Bournemouth on Saturday, and he expressed his happiness at the turn out of events.
'It was a very easy decision because I feel very good here,' Moutinho told the official Wolves website.
'It's a big club that wants to do something good and I want to do my best to help.
'We did a great job last season and this season we'll try to do better.
'That's what we're going to do and I'm going to try 100 per cent to help the club to improve.
'I feel very good. We won today, a very important win, and I signed a new contract.
'I'm very happy to help the team today and I hope to help for the new two, three years.'
A seasoned Portuguese international, Moutinho is third on his country’s list of most capped players with 121, behind only Cristiano Ronaldo and Luis Figo.
Moutinho was part of the Portugal side that won EURO 2016 in France.
Wolves sporting director Kevin Thelwell said: 'It's terrific news. In the time he's been here, everyone has been able to see he's a top player.
'Top performances on the pitch, top professionalism off the pitch. He has an amazing mentality and has made a really big impression on everyone at the football club.'
