Reus, who had an injury-plagued 2014 when he also missed the World Cup which Germany won, looked to be on his way out after Bayern Munich revealed he had a buyout clause in his contract, angering Dortmund.
With his club hovering in the relegation zone after a dismal first half to the season, speculation had been rife he would leave.
"I am happy to have extended the contract," Reus said in a club video interview. "When I came here (in 2012) I said I wanted to do things. I have the feeling that it's not over even in this situation."
"We fall together and we win together, It is a decision for life. I did not think about it that long for no reason."
Dortmund did not reveal details of the deal but it reportedly does not include a buyout clause.
Dortmund, German champions in 2011 and 2012, are struggling this season, lying in the relegation playoff spot and the news of the deal will further boost their confidence after their first win of the year on Saturday against Freiburg.
"We never let ourselves be influenced by all the transfer rumours and we always saw a good chance that this exceptional player could consciously decide in favour of Dortmund," CEO Hans-Joachim Watzke said in a statement.
"Marco can mark whole era in Dortmund, just like Uwe Seeler did it in Hamburg or Steven Gerrard did it in Liverpool. The fact that he chose to stay in Dortmund right in the middle of a crisis shows a high level of identification that makes us proud."
The 25-year-old Germany international Reus, who was born and raised in Dortmund, played for Borussia's youth teams for 10 years before returning in 2012 from Borussia Moenchengladbach.
Considered among the fastest and most talented wingers of his generation, Reus has only just come back from an ankle injury suffered late last year.
He has scored 70 goals in 169 Bundesliga matches and has netted seven times in 23 Germany appearances. Reus is the only Bundesliga player to have scored at least 10 goals in each of the past four seasons.
Dortmund face Juventus in the Champions League round of 16 this month.
(Editing by Ed Osmond)
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