The Argentina winger moved to Estadio da Luz from Boca Juniors in May 2010 for a reported €8.4million and has become a key player for the Lisbon giants.
Gaitan's previous deal was due to expire in 2016, but it was announced on Monday that he has signed fresh terms until June 2018 with a release clause of €35million inserted.
"Benfica and the athlete, Nicolas Gaitan, have extended the employment contract for two more seasons up to June 30, 2018," read a statement on the club's website.
"The termination clause in the contract is set at €35million.
"The Argentina international, 26, came to Luz on May 3, 2010, originating from Boca Juniors."
The 26-year-old, who was linked with a move to Manchester United and Liverpool, played his part as Benfica secured a domestic treble by winning the Primeira Liga, Taca de Portugal and Taca da Liga last season.