Laws, who quit the Iron to take charge of the Owls in November 2006, recently passed the 100-game mark at the helm at Hillsborough.
His assistant Russ Wilcox, who left Scunthorpe at the same time as Laws, has also put pen to paper on a new three-year contract.
"My ambition when I took this job was to take Sheffield Wednesday back to the Premier League and that is still something that drives me on for success with this great football club," Laws told the club's official website.
"I am delighted to sign a new contract here and, while there have been changes at the club during my initial two years at Hillsborough, we have a firm plan in place to improve the footballing operations at the club and drive Sheffield Wednesday on up the league.
"I would like to thank the Owls fans for their tremendous backing during my initial two years at the club and I will endeavour to pay back the supporters with success on the pitch."