Darby's original City contract was due to expire this summer but he has now penned a new deal at the Coral Windows Stadium which will keep him with Phil Parkinson's side until the end of 2016/2017 season.
On top of Darby's new City contract, the popular Liverpudlian, who swept the board at last month's Player of the Year awards evening, has also been confirmed as the club's new captain for the 2014/2015 season.
Darby will take over the captain's duties from close friend Gary Jones, who recently left the club after two successful seasons in possession of the armband.
The right back captained City twice last season back in March for the games against Colchester United and Gillingham when Jones missed out on making the side due to a bout of illness.
Speaking about his deal and being given the captaincy, Darby, 25, said: "I'm delighted to have signed a new three-year deal here and I can't wait to help the club keep progressing forward.
"I've loved every minute at the club and all I wanted to do was sign here again.
"This is a massive club with a great set of fans and there is no better place to be for me.
"It is a massive honour and such a privilege to be given the captain's armband, especially when you look at some of the names of other Bradford City captains down the years.
"It was nice to captain the side for a couple of games last year and it was a great honour when the gaffer spoke to me this summer about doing it full time next season.
"Gary (Jones) is the best captain I have played with and I know he will always be there for a phone call if I need any advice.
"The captain's role is always to lead by example. That's what Gary did in the two years he was here, and that's what I'll aim to do as well.
"I'll look to take one or two things from when Gary was here and try to use them myself."
Bantams boss Parkinson added: "Stephen had a terrific season last season and it was a real priority of ours this summer to get his signature on a new contract.
"Stephen is a tremendous professional on and off the pitch, and I am very much looking forward to working with him again next season.
"He will be our captain for the coming season. It is a big responsibility for Stephen but it is one I know he is ready for."
Darby's new deal and captaincy announcement comes on the same day that City confirmed the signing of central midfielder Gary Liddle (please click HERE for the story).