The new deal will keep Dison at Dundee United until 2012.
“He has great pace, technical ability and his work-rate is second to none,” said United manager Peter Houston.
Dixon said: “I look forward to what I’m confident will be a successful period for the club.”
Dixon joined United from city rivals Dundee in June 2008.
“Paul was probably signed with one eye on the future but he quickly adapted to the demands of playing at a higher level in the SPL and soon established himself as an indispensable first-team player,” said Houston.
“His recent call-up to the Scotland squad was fully merited and thoroughly deserved.
“Paul’s work-rate and attitude is second to none and this, coupled with the fact that he is a local lad and a United fan, has also made him a popular player with supporters.”
