Belgium midfielder Dembele, who joined Tottenham from Fulham in 2012 in a £15 million deal, has made 143 appearances for the club and scored nine goals.
"The way we're playing, the way the club is developing, everything is very good," Dembele, 28, said on Tottenham's Twitter feed.
"Everyone wants to be part of this team and this club. That's why I am proud to extend my contract."
Dembele, who has more than 60 caps for Belgium, has helped keep Tottenham on the fringes of the Premier League title race this season, scoring four times in 20 appearances.
That represents a turnaround for Dembele, who made only 10 league starts last season and scored once.
British media reported his new contract would be worth around £60 000 a week.
Tottenham visit third tier Colchester United in the FA Cup fourth round on Saturday.
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