The contract with improved terms keeps him at Furness Building Society Stadium until May 2018.
Williams, 23, joined Barrow from Northwich Victoria at the turn of the year and has impressed at the higher level ever since.
With a few clubs expressing an interest this pre-season, chairman Paul Casson and manager Paul Cox were keen to get him tied down to a longer deal.
The increasing of Williams contract comes on the heal of the capture of Byron Harrison on a two-year deal and Euan Murray who signed a one-year contract.
Negotiations with keeper Andy Coughlin are also at an advanced stage as Cox looks to finalise his squad ahead of next week’s National League opener with Aldershot Town.