The 21-year-old defender arrived at the Madejski Stadium from Swindon in January 2011 and spent a successful loan spell with Huddersfield last season. Morrison has made two appearances for Reading and impressed during last week's 3-2 Capital One Cup victory at QPR.
"Sean is a player who went out on loan and did really well for us," Reading manager Brian McDermott said. "He's got the tools to work at his game and be a really good centre half. If he keeps working and keeps doing what he's doing he'll be a very, very good defender. I'm sure he will be."
Morrison is also pleased with the deal and promised to repay McDermott's belief.
"It's always nice to sign a new deal, now I've got to push on and show all the Reading fans what I can do," he said.
"I'm improving every day and I think if the manager was to call upon me I'd be ready.
"Since I've been here the gaffer has given me his backing, I know he and the coaching staff believe in me which gives me a load of confidence."