Fullback McKenzie has been key in the Chiefs' table-topping resurgence this season, leading the competition in tries and points scored while being widely touted for an All Blacks call-up for the June internationals against Wales.
Invercargill-born McKenzie hails from Otago Highlanders territory but was swooped up by the North Island's Chiefs after impressing at the junior world championships in 2014.
His new deal will keep him at the Hamilton-based side until the end of the 2018 season.
"We're absolutely rapt that Damian's committed here long-term," Chiefs coach Dave Rennie said in a team release on Tuesday.
"He's an impressive young man -- competitive and resilient with a skillset to rival anyone in the competition. He plays with a free spirit, is courageous and is a pleasure to coach."
At 1.75 metres (5ft-9in), McKenzie is pint-sized in the modern game but has impressed with his defensive prowess and raised eyebrows with a try-saving tackle on the Crusaders' Nemani Nadolo in February that sent the bulky Fiji-born winger flying over the touchline.
He has also become renowned for breaking into a toothy grin every time he lines up for a kick off the tee, in contrast to the usual fraught expressions on rival kickers' faces.
The smile, described as 'scary' by at least one Australian rugby pundit, has been flashed countless times in racking up 120 points after 10 rounds of the season.
"I don't want to change my routine but I'm getting a bit of stick for it at the moment," McKenzie said last month. "A few people are telling me that I look like a bit of a creep."
The Chiefs (8-1) play the defending champion Highlanders (6-3) in a blockbuster clash in Hamilton on Saturday.
(Reporting by Ian Ransom in Melbourne; Editing by John O'Brien)
