He made his Ireland debut against France in a World Cup warm-up match in August 2011. The 24-year-old has won 22 caps so far and has scored two international tries.
His last appearance for Ireland came against New Zealand in last month's GUINNESS Series game at the Aviva Stadium.
Murray was selected for the 2013 British & Irish Lions tour of Australia and featured in seven of the tour matches, including the final two Tests against the Wallabies.
He scored two tries for the Lions, touching down against Combined NSW-QLD Country and the Melbourne Rebels.
IRFU Chief Executive Philip Browne said: "Conor has made a significant impact on Munster and Irish rugby since making his breakthrough in 2011. We are delighted that he has signed a new contract that will keep him at Munster until the end of the 2016 season."
Munster head coach Rob Penney said: "We are delighted that Conor has signed a new IRFU contract which will secure him to Munster until the end of the 2016 season.
"Conor has illustrated in recent months the value he brings to not only Munster but to the national team as well. At 24 he is still a young guy and he has the potential to go on to become one of the best scrum halves in the game."
Commenting on the new contract, Conor admitted: "I am thrilled to sign a new IRFU contract and to continue playing my rugby with Munster.
"In 2013 I learned a lot as a player with my province, Ireland and the Lions and I hope to continue to develop and push for honours over the coming years."
This positive news comes after the Limerick man's disappointing early exit from Munster's Heineken Cup win at home to Perpignan last Sunday.
It has been confirmed that Murray, who was replaced towards the end of the first quarter, sustained medial ligament damage to his right knee and will be out of action for up to six weeks.