"I'm delighted to continue at home, the only place where I ever wanted to be, and it has finally come true," Torres told the club's website (en.atleticomadrid.com).
"I've never had doubts about where I wanted to be during all this process in which we didn't know what was going to happen and, in the end, what matters is that I have achieved what I was waiting for."
Torres racked up 12 goals in all competitions last season as the Madrid team finished third in the league and reached the Champions League final which they lost to local rivals Real.
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French forward Antoine Griezmann signed a contract extension with Atletico last month, keeping him at the club until 2021.
(Reporting by Ian Rodricks in Bengaluru, editing by Ed Osmond)
