"I am really pleased to have signed a new contract, the future looks exciting with Ulster with the new coach that we have in place and the fact that Matt Williams was very keen to keep me was a big sway in me staying," Wallace said.
"I feel that there is unfinished business here at Ulster because we haven't progressed in the Heineken Cup in the last number of years and that is something that I have always wanted to do with Ulster and I think it is something that we can do in the next couple of years."
Wallace, who is likely to win his 100th cap for Ulster within the next few matches, made his Ulster debut against Swansea in August 2001 and whilst primarily an out-half, his versatility means that he has often played for Ulster in the centre and occassionally at full-back.
Wallace has represented Ireland at Under-21 and 'A' level and was part of the Irish Churchill Cup side in June 2006 before being called into the senior panel and winning his first start for Ireland against the Pacific Islanders in November 2006 when he was also deservedly named the man-of-the-match.
He has continued to feature regularly in the Ireland matchday 22 and having toured Argentina last summer, the 28-year-old was a member of the 2007 World Cup squad and is currently involved in this season's Six Nations panel.
Matt Williams, who is preparing his Ulster side for his first game in charge against the Dragons on Friday, is delighted to have secured Wallace's services.
"Paddy agreeing his contract is great news, I am delighted. I have known Paddy for a long time and he is a real talent on the pitch as well as a proud Ulsterman and I consider him one of our top players. He is a creative player who could hold his own in any team in the world and to have him staying is a big plus and a vote of confidence for the team," Williams admitted.