Confirming the news Town boss Roy Keane told the Official Club Website: "I had a chat with Alex last week and I told him that I was keen for him to stay at the Football Club.
"He made it clear that he wanted to stay so it was down to trying to sort a deal out and I'm delighted we've achieved that."
Bruce himself said: "I never wanted to leave the Club and it was always my hope that a deal could be sorted out.
"I sat down and spoke to the manager and Simon Clegg (chief executive) last week and liked their ideas and plans for the Club.
"It's a new regime and the owner clearly has made a statement of his ambitions for Ipswich Town by bringing in someone like Roy Keane to be manager here.
"It's an exciting time for the Club and I'm delighted to be part of it. The aim is clear, to get Ipswich Town back in the Premier League. That is why I came here in the first place."
Click here for a profile of Alex Bruce or Click here for a game by game rundown of his 2008/9 Championship season.