The 27-year-old missed the majority of last season with the injury he suffered last November, which has required three operations, the most recent in May.
He is expected to miss the first four months of next season, meaning he is unlikely to play for Ireland or Ulster prior to his new six-month contract expiring, but will instead look to complete his rehabilitation.
Ferris' contract with Ulster and the Irish Rugby Football Union had been due to expire on June 30, and he had been widely linked with a move to a club in Japan.
Ulster rugby director David Humphries said: "Stephen has had a difficult year with the injuries that he has suffered, but when he is fit, there is no doubt that he is one of the best back-row forwards in the game.
"Stephen is passionate about playing for Ulster and Ireland and our aim in giving him this contract extension is to provide him with the best possible care to enable him to get back playing."
Ferris, who has 35 caps to his name, added: "I am delighted that I can continue my recovery and rehab from injury within the Ulster Rugby set-up.
"I believe that working with the medical team at Ulster, along with the excellent strength and conditioning coaches, offers me the best chance of regaining full fitness and of representing Ulster and Ireland again."