The Worksop-born full-back was offered fresh terms at the end of last season alongside keeper Keiren Westwood and midfielder Kieran Lee.
Westwood signed a two-year deal earlier this month, with Palmer, who joined the Owls’ academy at the age of just seven, having now committed his future to the club.
The 27-year-old enjoyed a impressive 2018-19 campaign at Hillsborough and is currently the club’s longest serving player after coming through the ranks and making his debut in August 2010.
Palmer’s time at the club was solely interrupted by a season-long loan at Tranmere Rovers in 2012-13 and he is currently preparing for his ninth campaign with the first-team squad at Wednesday, having played for the first team on 224 occasions.
His form last season culminated in a senior debut for the Scotland team in March, with Palmer’s grandmother having been born in Carluke.