The new deal will keep Davies at the Reebok Stadium until 2010.
Davies told the club website after signing the contract: “I’m delighted everything is sorted now.
“The future is very promising for this football club and I’m happy that I can be part of it.”
Manager Sam Allardyce said: “Kevin is crucial to the ongoing success we have at this football club and I’m thrilled that he has committed his future to us.
The 29-year-old striker joined Bolton on a free transfer from Southampton in 2003.
