The 23-year-old has put pen to paper on a deal until the end of the 2020 season.
Lamb, whose sister Emma also plays for the county, made his first-class debut for the club last season after breaking into the white ball sides back in 2017.
He also made six appearances in the 2018 T20 Blast helping Lancashire Lightning reach finals day at Edgbaston.
The Old Trafford club have also announced that left-arm seamer Toby Lester has signed a new contract until 2020.
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“Playing cricket for Lancashire is all I've ever wanted to do and I am delighted to have signed a new contract with the club,” said Lamb.
“I feel like my game has progressed well over the past 12 months and it was a great feeling to make my first-class debut at Worcester and to also play a role in the Blast.
"We've got a good core of young players in the squad and hopefully we can push on next year as a team and I'm looking forward to being a part of it.”
Lamb and Lester join Preston’s player of the year Tom Bailey and Rob Jones and Josh Bohannon in signing new deals.
The Red Rose have also signed Australians Glenn Maxwell and Joe Burns ahead of the 2019 season.