The 20-year-old Academy graduate has impressed since making his debut as a substitute in this season’s Carabao Cup triumph at Sunderland.
He impressed as a left-back – earning the Owls player of the month award for September –before being pushed further forward by manager Jos Luhukay.
And Penney – whose contract was due to expire next summer – has now signed a one-year contract extension, to stay at Hillsborough until 2020.
“It has been a great experience for me (playing first-team football),” said Penney, who has previously been loaned out to Mansfield Town and Bradford City. “It was the next step I needed in my career and thankfully the gaffer has given me a chance.
“He has put his faith in me and hopefully I’m repaying him now.”
Penney has made nine starts and four substitute appearances this season, and will be hoping for a recall this weekend when the Owls entertain Norwich City. Canaries striker Jordan Rhodes – on a season-long loan from Wednesday –is unable to play, due to the terms of the deal.
Pressure is mounting on Dutchman Luhukay to halt the Owls’ slide down the table, after three sucessive defeats.
Luhukay said: “They players have shown in the past they can do it. They have to show more than what they are doing at the minute. You saw against Birmingham that they tried to come back right to the end.
“They worked hard and were fighting but in the end we must have a little bit of luck and take our chances. But I believe in my team. We are not happy in this period but we must try even harder to work with each other to find a way to return to a positive direction.”