Hannam, 20, has impressed with his exemplary attitude since joining Palace last summer, and recently featured as an unused substitute for the Premier League clash with Fulham.
The left-back has been a key member of Shaun Derry's Under-23s squad this season, playing 11 games and claiming four assists so far.
Derry said: "Reece is an exceptionally hard-working individual who is demonstrating high levels of maturity, determination and understanding of what is required to play for our football club since joining last year.
"It is extremely pleasing to see players who stand out in our Academy and Development set-up being given these opportunities to train with – and indeed, potentially feature in - the first-team."
Upon signing his extension, Hannam said: "I'm delighted to have extended my contract with Crystal Palace and have really enjoyed being at this club since joining.
"The support from Shaun, the other coaches and staff and my teammates has been huge and being called-up to the first-team squad last week was an honour. I'm very excited for what's to come and look forward to working hard at Crystal Palace."
READ NEXT: Palace make two Development signings