Williams originally signed with the club on a non-contract basis early last month but he will now remain with the Bantams for the remainder of 2014.
The 32 year-old has played twice for Phil Parkinson's men so far this season - both times in the Capital One Cup.
Williams made his City debut in the first round win at Morecambe before making his maiden home appearance at Valley Parade in last week's thrilling second round encounter with near neighbours Leeds United.
The former Hibernian, Crewe Alexandra and Colchester United shot-stopper has also been on the bench for every one of City's league games so far this season.
Commenting on Williams' new deal, Bantams boss Phil Parkinson said: "I am delighted that Ben has decided to stay with us until at least the start of January."
"We have been pleased with how Ben has performed in the games he has played for us and how he has done on the training pitch.
"He has worked well with Jordan (Pickford) and Matt (Urwin) under the supervision of Lee (Butler, goalkeeping coach).
"He has also been a good figure around the dressing room even when he hasn't been playing, which is important as well."