The 30-year-old centre half moved to the London stadium in October on a season-long loan deal but had to wait until December to make his Hammers debut.
A clause in Dawson’s temporary switch stipulated that West Ham were obliged to make the deal permanent if he made 15 top flight appearances, which came in Monday’s 3-2 win at Wolverhampton Wanderers, propelling David Moyes’ men into the top four.
Dawson will now be rewarded with a two-year contract at the end of the 2020/2021 campaign.
"Coming to West Ham has been a great move for myself, and it is a privilege to play for a club with such rooted traditions," Dawson told the club's website.
"The squad has a real togetherness, team spirit and great quality. I'm excited for what my future at the club may hold and the potential for what we as a club can go on to achieve."
Hammers manager Moyes added: "Craig's performances, attitude and the impact he's had demonstrate why he deserves a permanent deal. He arrived with a wealth of Premier League experience and that's been really important to us."
"He had to be patient but he's come in and grabbed his opportunity with both hands. We are always looking to improve the squad and Craig joining us permanently certainly does that."
