Earlier this month, Tottenham were preparing a £15 million bid for the 20-year-old, while Louis van Gaal has advised the winger to remain in Holland for another season and wait for Manchester United to make a move.
After making four appearances for Netherlands at this summer’s World Cup, Depay has begun the Eredivisie season in fine form, scoring four goals in PSV’s first two games.
"I want to develop myself in this team,” Depay told the club’s official website.
“We started a project last year and we want to have succes. I want to play for the silverware in the Netherlands en be important for the team. I'm really glad I came to an agreement with the club."
PSV technical director Marcel Brands revealed that the club have used their funds for a new player to finance Depay’s new deal.
"We have worked hard for one year behind the scenes to keep Memphis in Eindhoven this season," Brands said.
"We are more than pleased that he enters this new commitment.
"The budget that was available for to bring in another winger has now been used to keep Memphis at PSV."