The goalkeeper, 32, has made over 200 appearances for Rovers since joining in 2015 and won last season’s League Two Golden Glove award.
Davies told the club’s website: “I’m delighted, I’ve had a great time, enjoyed great success and I love the club. I am very happy to commit my future to Tranmere Rovers and I am looking forward to the future.
“I have a great rapport with the fans and it is a huge honour to sign this contract and captain this football club.”
Manager Micky Mellon added: “Scott makes sure that everybody knows what it means to be a Tranmere player and what it takes to be a successful Tranmere player.
“He is certainly one that we know we can rely on to drive the standards both on and off the pitch. We are delighted he is staying and I’m sure that the fans will be too.”