The Republic of Ireland international, who had two years remaining of his previous deal, has committed himself to the club, following in the footsteps of skipper Karl Henry and defender Richard Stearman.
Foley, 26, has made 161 appearances since moving from Luton four years ago.
He can operate in central and right midfield but played at right-back during the second half of last season when Ronald Zubar was injured.
Foley said: "The new contract extends my future here by four years and I was really happy the club wanted to do that.
"I've spent four years here now - two in the Championship and two in the Premier League - and feel like I've made good progress. That's something I want to continue.
"A lot of the lads have been happy to commit their futures and I think the key to that is how well everyone gets on and with the management staff as well.
"It's a team game and nobody ever feels left out even if they are not playing."
Wolves manager Mick McCarthy said: "I'm delighted that Foles has signed a new contract.
"He is another of those players who joined us in the Championship, helped the team win promotion and has continued to develop year after year.
"He can always be relied upon for the consistent levels of his performances, and it's great to have another key member of our squad commit his long term future to the Club."
Foley has won eight caps for his country and helped them gain a shock win in Italy last month.