Law has been on the books of Rangers since 2013 and has a contract that runs out at the end of the season.
Johnstone, who played for the Gers in the 1970s and 1980s and is a club legend, believes that the 27-year-old midfielder should get a new deal.
“At 27, he is in his prime and I think he is worth a new deal,” the former Scotland international has written in The Glasgow Evening Times. “It will be difficult for him to start every game because Mark (Warburton) has got a good squad of players there and if more players come in then, there will be tougher competition and I’m sure Law knows the score on that front.
“But I think he could be included in that group and play his part because he is someone who is capable of changing a game. If he can keep himself in the team between now and the end of the season, he will hope his form will be rewarded with a new contract.”
Law is one of the senior players in the current Rangers squad, but he has not always been guaranteed a place in the starting lineup under manager Mark Warburton this season.
The former Rotherham United and Motherwell midfielder has to compete with Gedion Zelalem and Dean Shiels for a place in the team.
With Rangers looking set for promotion to the Scottish Premiership at the end of the season, Law will have to prove that he is good enough to play for the Gers in the Scottish top flight.
Rangers are at the top of the Scottish Championship table at the moment with 50 points from 20 matches. The Glasgow giants are two points clear of second-placed Hibernian, who have played a game more.