The versatile Cardiff man arrived at Bramall Lane at the start of October on a one-month deal and, having made five starts, will now remain until January 1.
Lappin was brought to the club by David Weir, who was duly sacked just a week later, but the 30-year-old has proved his worth to new boss Nigel Clough as the Blades look to climb out of the League One relegation zone.
"Simon is staying with us and we're pleased about that because he's done well since we've come in," Clough told the club's official website.
"Simon is technically very sound which is good. I know that, despite being seen as a defender, he probably prefers to play further forward which is where we've used him.
"Simon has got good experience and that's always beneficial too."