Regarded as one of the most influential broken-field runners in the country, Balshaw's ability to link play from anywhere in the back three has been instrumental in Gloucester's charge to the top of the table this season.
The 29-year-old joined the club from Leeds Carnegie two seasons ago and in 38 appearances has scored 12 tries - including four in the Guinness Premiership this season. His career began and started to flourish at Bath and in 1999-2000 he scored 15 tries in 21 appearances.
It was during that remarkable scoring sequence that he burst onto the scene with England and he has since won 35 caps and was also part of the British Lions tour to Australia in 2001.
"I said when I joined Gloucester from Leeds that it was a place with massive potential and with the development the squad has gone through over the last 18 months, some outstanding signings and a fantastic structure, I am thrilled to have signed for another two years," Balshaw told www.gloucesterrugby.co.uk
"The challenge is to constantly improve and be your best - we have only just begun to scratch the surface of what we can achieve and that is very exciting. The club is growing and I want to grow with it and take it as far as I can.
"I am confident that we can fulfil our ambitions over the long-term. That is going to take hard work and dedication but Dean Ryan and the coaching team are building something special, we are attracting some fantastic players and it is a great place to play rugby."
Gloucester's head coach Dean Ryan added: "I have been delighted with Balsh's contribution this season and I think we have seen the benefit of a really good pre-season and the confidence return to his game.
"He brings some outstanding attributes to our style of play. His running from deep provides a genuine cutting edge and his kicking game is excellent. I am really pleased a player of his quality has decided to stay with us for the long-term.
"We are on the cusp of something very special and to achieve it we need players of Iain's quality and I am delighted he has pledged his future to us."
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