The 21-year-old joined Chelsea in 2011 but has yet to make a first team appearances for the Blues, moving instead to Atleti initially as a short-term loan replacement for David De Gea.
The Belgium international has gone on to make 96 appearances for los Rojiblancos in all competitions, winning the Copa del Rey, Europa League and Super Cup in his two years at the club.
|100/1||Atletico Madrid are 100/1 with BetVictor to win La Liga next season
Courtois is delighted to have extended his stay in the Spanish capital and is eagerly looking forward to competing in the Champions League next season.
"I am very happy because it was what I wanted," he said.
"I have always said that I wanted to continue at Atletico next season and take part in such an important competition as the Champions League after we qualified for it in such a brilliant way.
"I am only thinking about continuing to enjoy the incredible support that we have and I hope we can continue to bring them a lot of happiness."
The Belgian youngster, who joined Chelsea for a fee of around £4 million from Racing Genk, kept 20 clean sheets in La Liga last season, but was unlikely to usurp Petr Cech at Stamford Bridge.