Reid's original loan deal from Championship side Preston North End ran out after Saturday's game at Gillingham but the winger has now penned a fresh contract to keep him at the Coral Windows Stadium up to the end of May 2016.
The 28 year-old attacker has featured in seventeen of City's eighteen games since originally returning to the club from Preston back in early October. He scored in the Bantams' 4-0 win over Chesham United at Valley Parade last month.
Reid's participation in the Emirates FA Cup earlier this season means he will be eligible to feature in Saturday's third round tie at Bury.
Speaking about Reid's extended stay, Bantams boss Phil Parkinson said: "We're pleased to get the deal down to keep Kyel here.
"He's been a good outlet for us since he returned to the club and we are looking for him to push on again now.
"It is a boost to us all to have him in the squad again for this Saturday's match (vs Bury)."