Durm was a World Cup winner with Germany in July following a meteoric improvement last season that resulted in a surprise call-up.
He had joined Dortmund in 2012 but had to wait for his Bundesliga debut until last August.
A string of injuries to starting left back Marcel Schmelzer gave the 22-year-old a lot of playing time last season and the German call-up followed several superb performances in the Champions League.
"Erik is a great young man who is firmly on the ground," said Dortmund Sports Director Michael Zorc in a statement.
"For us it was always clear that given his development we would sign a long-term deal."
(Reporting by Karolos Grohmann, editing by Ed Osmond)
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