The Dragons Academy product has impressed this season at wing and at full back.
Dean Ryan, Director of Dragons Rugby, said: “Will stepped up and did a good job for us this season with Jordan Williams unavailable.
“He became more settled in the side and you could see with every game he was growing in confidence.”
Twenty-two-year-old Talbot-Davies, who has played 11 games in both of the last two seasons, is looking forward to getting rugby resuming when it’s safe to do so.
He said, “I’ve enjoyed my time so far at the Dragons and am delighted to re-sign with the club.
“Since Dean has arrived there has been a new sense of positivity and confidence around the place which has translated into some great results this season.
“I can’t wait to get back training with the boys and am very excited to be part of the club’s progression in the future.”
News of Talbot-Davies’ contract renewal follows confirmation earlier this week that wing Owen Jenkins has signed a permanent deal with Dragons.
The two wings are the latest players to commit their futures in addition to Ross Moriarty, Rhodri Williams, Ollie Griffiths, Jordan Williams, Aaron Jarvis, Tavis Knoyle, Taine Basham, Rio Dyer and Josh Lewis.
