Newly appointed Rangers manager Steven Gerrard finalised his third signing thus far, with Murphy joining the likes of Scott Arfield and Allan McGregor who have already cemented their future at the club.
After getting handed several thrashings by bitter rivals Celtic this season, Gerrard's appointment comes as club hierarchy seek to shape a side that can challenge Brendan Rodgers' squad next season.
For his part, Murphy told the official club website: ''I'm delighted to make my move to Rangers permanent. This club means a lot to me and it already feels like home.
''Whilst I'm naturally disappointed we didn't complete the objectives we set for ourselves last season, I am more determined than ever to help this club to be a success.
''With the new manager in place, two new signings confirmed already and an exciting summer to follow, I can't wait to get started on the next chapter of my Rangers career.''
May 18, 2018
As for Liverpool legend Gerrard, he said: ''It's more good news for the club that Jamie has committed his future to us ahead of the new campaign.
"He had an impressive start to his Rangers career in the second half of last season and we hope to see him continue to grow at the club next season and beyond.''