The 24-year-old right-back, who joined the club at the age of 11, has committed himself to the European champions until the summer of 2021
The youth academy product made his Blancos debut during a 6-3 win over Valencia at Mestalla in 2011 but only really made his first-team breakthrough last season under Carlo Ancelotti, racking up a total of 19 appearances in all competitions.
The European champions have now confirmed that Nacho, 24, has been rewarded with a new deal that will keep him at Santiago Bernabeu until the summer of 2021.
"Real Madrid announce that Nacho Fernandez's contract has been extended for the next six seasons," read a statement on the club's official site.
Nacho, who has been capped once by Spain, joined the Blancos as an 11-year-old and made more than 100 appearances for the B side between 2009 and 2013.