The Spain international admits he has been flattered by the club's display of "faith" in his ability, and intends to remain at the Santiago Bernabeu until he hangs up his boots
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"I'm very happy here and hope to be here until I retire," Albiol told the club's official website.
"In the world of football you never know, though, because anything can happen during each season. However, I'm really excited and want to stay on at the club.
"I am very happy with my new deal because this means that the club and its coaching staff trust me being here.
"I really feel at home at Real Madrid and I'm very happy. Now I have to show that they are not wrong and that I can be a good player for the team."
The 26-year-old joined Madrid from Valencia in the summer of 2009, and has since made 63 league appearances for the Spanish champions.