The former Celtic, Queen of the South and Morton defender, 28, joined the club last February.
Reid made his debut against Dundee United at Tannadice the day he signed, then started every game from then to the end of the campaign, either at right-back or in midfield, and capped off the season by scoring the last-minute winner against Aberdeen at Pittodrie to confirm Well as Scottish Premiership runners-up.
Speaking to MFC TV, Reid said: “I am delighted to get everything sorted.
“I’ve loved it since I arrived at the club and I am looking forward to the next two years.
“It was incredible just how things went for me last season, particularly the way the season finished.
“With a good, settled pre-season behind me, I just can’t wait to get going again.”
Motherwell boss Stuart McCall added: “Reidy came in when we needed help last year and performed fantastically well for us; a real unsung hero in the last few months of the campaign.
“I was delighted for him to be the man who scored the winner at Pittodrie, it was just reward for all the hard-work he put in and the sacrifices he made.
“He provides us with a good option both at full-back, but also in midfield.
“He’s also the type of lad who will run through a brick wall for the cause and you can’t have enough players with that attitude.
“We are absolutely delighted to have him for a longer period.”