The 28-year-old has the most appearances of any Palace Women's player in the professional era, having played 118 games in red and blue.
The new deal follows another standout season for Sharpe.
With five goals and three assists in 17 league appearances, she was instrumental in firing Palace to a second-ever promotion to the Women's Super League.
Manager Jo Potter said: "We are thrilled to have Molly sign a new deal.
"Her form and her consistency were crucial to our promotion this season, and her experience will be invaluable as we take on the WSL."
After signing the new deal, Sharpe said: "I am over the moon to be extending my stay at the club I call home.
"The club is very special to me, and I am grateful every time I put on the shirt."