The new deal will see the Wales back row star remain with the Welsh region until 2009.
Mike Cuddy, Ospreys joint managing director, said: "Although we have clearly underperformed this season, much of the reason for this is due to injuries to our key players.
"We know we are a much better side than our results have suggested and the return of players such as Ryan will lay the foundations to what I am sure will be a successful 2006-2007 season.
"We are confident in the direction we are taking and key personnel are keen to commit themselves to the Ospreys.
"Ryan is one of these key players, and he approached us after the Lions tour at a time when other sides were expressing an interest in signing him.
"Since then it has proven to be a difficult time for Ryan and it is a measure of our commitment to him that we are extending his contract at this time.
"Ryan is the type of player that is always keen to work on his weaknesses and when he returns I am confident he will cement his position as one of the games leading back row players."