The young forward had recently been linked with a summer transfer but has now opted to extend his stay in the capital for the next four years, having impressed with Castilla
The Spain Under-20s star's previous deal was due to expire in 2014 and the attacker recently hinted at a potential transfer elsewhere in order to bolster his chances of first-team football.
However, Jese has now ended all speculation about his future by inking a four-year extension with Madrid.
"Real Madrid announce that Jese has extended his contract, by which he will remain with the club for the next four seasons," a statement on the club's official website reads.
The versatile attacker is seen as one of the biggest talents to have come through the ranks of the Madrid youth academy in recent years and made his official first-team debut in December 2011.
Jese impressed with Real Madrid Castilla in the Segunda Division in 2012-13, netting 22 goals to beat club legend Emilio Butragueno's record for goals scored in one season with the youth side.
He was also one of Spain's brightest stars at the Under-20s World Cup, bagging five goals in five appearances.