The 28-year-old returned to the Hatters from Barnsley last summer after more than a decade away from the club.
Woodrow joined the Luton Town academy when he was 14 years old, making three senior appearances having just turned 16 before joining Premier League Fulham in March 2011.
The Hemel Hempstead-born player made the permanent switch to Barnsley in January 2019, where he achieved promotion from League One and a Championship top six finish before arriving back at Kenilworth Road for the second time.
The forward made 32 appearances on his return last season, 23 of which were from the bench, and scored three goals, including a last-minute winner against Norwich City on Boxing Day.
Manager Rob Edwards said: “Cauley has had a frustrating time since we came in. When we arrived he was just coming back from injury and worked extremely hard to get himself fit.
“He may not have been starting matches, but he was coming on a lot as the first sub to be introduced and was always very important, whether we were winning or losing games.
“I thought he was excellent when he started against Rotherham and Reading, but unfortunately he hurt himself again, and although he tried really hard to come back for the play-off semi-final, he then broke down again which ruled him out for the final.
“Looking back, Cauley arguably scored the most important goal after we came in, which was against Norwich at home on Boxing Day. Down to ten men, we went for it and put him on and thankfully he did what we know he can do.
“He scored a brilliant goal and I think that really got the whole thing going for us. A home win, the first for a while – it got a lot of belief going and helped create a connection between us and the supporters. It really helped us, so Cauley played a huge part in us building momentum.
“He still chipped in with goals, but it was his all-round play, his work-rate, which again we know that we need, that’s what we are about.
“He’s a local lad and he’s had a little bit of Premier League experience in the past with Fulham, so he’ll be desperate to try and get some more. He’ll be someone who will be very hungry now to come back, try and impress and show what he’s about.
“He’s a brilliant human being as well. I love seeing him around the place, always smiling, always gives everything, so I’m really pleased that he’s agreed to extend his contract with us.”
After signing his new contract, Woodrow reflected on his first season back at Kenilworth Road, saying: “It was an unbelievable season. When I signed in the summer and spoke to Gary Sweet and everyone at the club, promotion was the goal.
“So to achieve it in your first season was amazing, and for everyone collectively it was an unbelievable achievement and something that everyone at the football club should be really proud of.
“A lot of fans might say that I didn’t play much as I’d have wanted to, but I had two injuries which came at bad times for me. I like to think that over the course of the season though, like everyone had their part to play, at times I had mine too.
“I was involved in over 30 games and the club has put their faith in me by offering me a new contract, which I’m absolutely delighted about.
“I know I’ve only been back here a year, but it is home for me. I live 20 minutes away, my family are close to me, I absolutely love the football club and the people in it, and I couldn’t be happier to be back playing for Luton Town.”
Reflecting on the goal against Norwich, the stand-out on-pitch moment of his first season back as a Hatter, Woodrow added: “For everyone at the football club, especially the fans at the Kenny, beating a big club like Norwich on Boxing Day was a big moment with it being Rob, Trolls and Richie's first home game.
"I think the celebrations that day – everyone together – was probably a moment that pushed us on. From then on we just went from strength to strength. The lads were on fire, everything clicked into place.
"Working with the manager and the new members of staff since they came in, even though I haven’t played as much as I’d like to, I’ve absolutely loved every minute of coming in and being a part of it and I can't wait to get going again on Thursday."