The 21-year-old re-joined the SPL outfit this summer on a season-long loan deal from Anfield.
Flynn began his career with Falkirk before being lured to the Premier League side in 2005.
However, less than two months into the new season, Flynn has now agreed a three-year contract.
Slotted inThe club's head of football development Ross Wilson believes the youngster has slotted in nicely since returning.
"Ryan has done very well since coming back to the club, he has slotted in like he has never been away," he told the club's official website.
"The manager has been asking about making the move permanent almost since we reached the loan agreement with Liverpool.
"This is a young Falkirk team, and Ryan is another young and exciting player who we feel can be a real asset to the club in the coming seasons."