The 23-year-old has been impressive as Chris Wilder's side have defied expectations this season and currently sit in the race for European qualification in their first season back in the Premier League.
With David de Gea enduring an error-strewn season and speculation has been rife that Henderson will be Man Utd's first-choice keeper in years to come.
Transfers
The time has come for Henderson and United to part ways
30/12/2021 AT 19:40
And he now has the chance to keep developing at Bramall Lane, where he also spent the 2018-19 promotion season.
"Chris Wilder has finalised his squad for the remainder of the current extended Premier League campaign," a club statement read.
"Goalkeeper Dean Henderson will remain at Bramall Lane until the end of the season, after a deal was struck with Manchester United following prolonged discussions between the respective parties in recent weeks."
Sheffield United have suffered a poor return to action after the coronavirus pandemic, having picked up just one point from their three Premier League games and been eliminated from the FA Cup by Arsenal on Sunday.
Premier League
Neville calls on United to sign 'exceptional' goalkeeper to replace De Gea
14/02/2021 AT 08:57
Premier League
Solskjaer tips keeper Henderson to become England's No. 1
15/06/2020 AT 07:57