The popular 34-year-old shot-stopper – who has played 66 times across the last four years – was offered an extension earlier this month.
And he will continue to be a 'focal point' going into a new era at Molineux after putting pen to paper.
Wolves' technical director Scott Sellars said: “We are all delighted for John to have signed a new contract.
"To have a person of his experience and quality is great for the squad.
“But not only that, the leadership he brings off the pitch and how he is in the dressing room and in training made it really important that we got John to stay at the club."
Ruddy has served as back-up to Rui Patricio in recent years but was essential as Wolves got promoted from the Championship in 2017/18, winning the league's Golden Glove award.
The future of No.1 Patricio – who is of interest to Italian club Roma, although an official offer is not thought to have arrived yet – remains up in the air, with Albion's Sam Johnstone among those linked to the club.
However, Ruddy's extension brings some stability and Sellars added: "With his experience, John has also gained a lot of knowledge and he’s shared that knowledge with all the players.
"Watching the games behind closed doors, you’ve heard how vocal he is even when he’s not playing.
“Then when he came back into the team against Everton (at the end of last season), he showed his quality, so it’s not just about his personality, we wanted him to stay because he’s a top-class goalkeeper. To have a goalkeeping group of the quality of Rui and John is really important.
“He’s been a focal point at Wolves ever since he came here, producing a great season to help the club earn promotion and then he’s shown all the qualities you need to be a number two keeper who pushes the number one – with the number one knowing he can’t rest.
“With a new manager and a new start, John’s now got the opportunity to push on again.”
Ruddy could be soon be working under Wales goalkeeping coach Tony Roberts, who Wolves want to bring in as part of Lage's incoming backroom team.
Roberts has been with Wales since 2016 and previously worked with Lage at Swansea.