The 27-year-old, who joined the RaboDirect Pro12 club from Ulster at the start of last season, will now remain at Galway Sportsgrounds until at least the summer of 2016.
Faloon is currently recovering from a broken foot he suffered against Ulster in September.
He said: "I'm delighted to be playing in Connacht for another two years. Since I arrived here, I've been made to feel so welcome by the lads and supporters alike.
"Obviously it's extremely disappointing to be injured, but I still feel very much a part of the team and am actively involved in analysis and team meetings.
"Right now, I am working hard with the physio Gavin (Malouf) and the conditioning staff to come back improved as soon as possible."
The news of Faloon's contract extension comes a day after scrum-half Kieran Marmion signed a new deal.