The 19-year-old was thoroughly impressive at centre-back and right wing-back for Rob Edwards' Under-23s during 2018-19 as Wolves won the Premier League 2 Division 2 title.
It was Sanderson's first season as a professional and his exploits were rewarded with the new Wolves deal which includes a 12-month option.
As per the official Wanderers website, the defender has been with the club since the age of eight, the earliest possible age.
Initially being part of the Under-9s, Sanderson rose through the ranks and eventually was included in the Under-23s team in 2018-19.
After recovering from a stress fracture injury during the first half of the campaign, the teenager returned to start eight of the final ten games en route to the title.
Academy manager Scott Sellars described Sanderson as "the sort of personality we like, really hard working, determined and committed", adding that first-team manager Nuno Espirito Santo looks for these qualities also.
Here is how some of the Old Gold faithful reacted on Twitter to the news:
Congratulations to Dion Sanderson, who has signed a new contract with the club until 2021!— Wolves Academy (@WolvesAcademy) 18 June 2019
The defender has been with the club since he was eight and was a consistent presence during our U23s' promotion run-in.
Well done Dion. Be great to see your progress all the way into the first team one day— Singhwhenyourewinning (@pedalsingh) 18 June 2019
This guy has huge potential. Hope to see him get his opportunity in the 1st team— Jan (@Jan77892722) 18 June 2019
Congratulations Dion , tremendous prospect .— Alan Leese . (@_AlanLeese) 18 June 2019
Watched a few the U23 matches at the end of last season, and caught the eye with his performances. A rising star. A new contract is well deserved. Look forward to seeing him in action next season at Bucks head.— Derek Shaw (@DerekShaw3) 18 June 2019
Congratulations, Young Man! x— Margret Bowen (@bowen_07) 18 June 2019
Well Done Dion ;0)— GraemeJTaylor (@graemejtaylor) 18 June 2019
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