Gray made his professional rugby debut with Northampton Saints in 2007 and switched to Harlequins in 2010 making over 100 appearances for the Twickenham Stoop outfit.
The 30-year-old joined Saracens on an initial one-year deal after training with them in the summer and made his debut for them in the Premiership during the win over Sale Sharks in November.
Gray, who made a solitary Test appearance for England in 2014 against New Zealand is delighted to remain with Saracens.
“I’m extremely happy to have signed at such an amazing club,” he told the official website of the club.
“Coming into Saracens in the summer was a great experience. They are an unbelievably welcoming club from the players to coaches and the rest of the staff.
“I’m loving being part of the team and I’m excited for what's to come.”
Saracens director of rugby Mark McCall is confident that Gray's experience will prove handy to the club.
"We are delighted that Joe has extended his stay at the club," he said.
“He has fitted in superbly and has impressed everyone with his work ethic and his willingness to pass on his experience to the younger members of the squad.”
Saracens are currently positioned second in the Gallagher Premiership after winning 10 out of their 11 games this season.