The new deal will keep the 24-year-old at the Molineux until the summer of 2015.
The winger has impressed since joining Wolves from Gillingham in 2007.
Wolves chief executive Jez Moxey told the club’s official website: “We’ve been talking to Matt and his representative for a long period of time.
“He was very keen to commit to us and we were very keen to commit to him.
“Matt is a highly talented player who fits in with our policy of developing good young players and aiming to keep them at Molineux.
“He started 30 games in the Premier League last season and did very well.
“He had less than two years remaining on his contract, and it was the right time to do something.
“There was a lot of speculation linking him to a possible call-up for the recent qualifiers which shows the progress he has been making.
“And we are confident he still has more improvement to come.”
