The 32-year-old scrum-half joined Wasps from Northampton last summer and has helped steer the Londoners to the top of the Zurich Premiership.
"The experience I've had at Wasps since moving clubs last summer has proved to me that coming here was the right move," he said.
"I've seen a huge improvement in my understanding of the game and therefore to sign a new two-year deal is nothing but a positive step.
"I'm moving towards the end of my career and I realise that it's probably going to be the last contract that I sign, but I feel I'm as close to the top of my game as I've been for the last couple of years."
Dawson recently won a recall to the England set-up after being left out due to his television commitments.
Wasps currently sit top of the table with Leicester level on points. And World Cup-winner Dawson revealed the prospect of working under Ian McGeechan and Shaun Edwards played a major part in his decision.
McGeechan, who worked with Dawson at Northampton and will assist Sir Clive Woodward on the Lions tour of New Zealand, will take over as director of rugby from this summer while Edwards has recently signed a new contract as first team coach.
"Geech was very influential in the middle of my career, at a time when many promising scrum halves can falter in their development," Dawson said.
"As a coach he helped me identify areas to develop, including some of the basics that can get neglected.
"I'm very pleased that Shaun has signed a new contract. I've been hugely impressed by his coaching this year. Under the combined coaching expertise of Shaun and Geech, there's no reason why I can't take my game from strength to strength over the next two years."