Evans, 22, who spent the 2015-16 campaign on loan with League One side Bradford City, has made 59 Wolves appearances since signing his first professional deal in January 2013.
"It's a big weight off my mind," said the Wales Under-21 international.
"We've been talking about it now for a couple of months. Now I can focus on the rest of the season."
Wolves head coach Paul Lambert said: "He's very similar to Jack Price and they've both done brilliantly well since I've been here.
"His performances against Stoke and Liverpool in the FA Cup emphasised how much we need that competition in the middle of the pitch."
Wolves midfielder Lee Evans has signed a new three-and-a-half year contract, keeping him at Molineux until 2020.