Lipman's deal will keep him at the Recreation Ground until the end of season 2008/09.
The 26-year-old, who has won three caps, joined Bath in 2003 and has made 75 appearances, but he is currently sidelined by a shoulder injury.
"Obviously, the season has been frustrating for me, but it happens to us all, and maybe this is my time in the injury department," he said.
"But it is great to be with Bath for another two years. I am only 26, so I've got a few good years left in me."