Bishop, 31, has played his entire career for London Irish, having originally joined the youth team ranks in 1989, and has been capped 25 times by Ireland.
He made 13 appearances this season, helping the Exiles to third place in the Guinness Premiership and the final of the European Challenge Cup.
"This club has made dramatic progress this season under the direction of Brian Smith and Toby Booth and we are playing great rugby," said Bishop.
"The prospect of competing in the European Cup again next season is exciting and I am looking forward to playing a part."
Bishop has scored 56 tries in a record 268 appearances for London Irish and Smith was anxious to keep him on board.
"Justin is a London Irish 'lifer' so his decision to sign a new contract is a real boost for the club," said the Australian director of rugby.
"He personifies the type of player this club is about - loyal, hard-working and talented and we are looking forward to working with him for another season.
"This club is proud of its Irish playing heritage which continues through Bob Casey, Barry Everitt, Aidan McCullen and Justin, and which we are keen to retain and enhance."