Having arrived at the Etihad Stadium from Palmeiras in January 2017, the Brazil international has gone on to score 24 goals in 53 appearances in his first 18 months at the club.
The 21-year-old will now remain with Pep Guardiola's side until 2023 and was thrilled to commit his future to the club.
"I would like to thank the fans for the welcome and for how well they have treated me," he told the club's website.
"I can say that it was the best decision I've made in my life to come to Manchester City because whilst I'm here I'm improving as a professional and as a person.
"Also thanks to the club for being so organised and focused since I arrived. Pep had an important role in my signing, but also the club.
"City is a huge club and it is getting bigger and bigger so I just want to say thanks for everything. I hope that I can keep making the fans happy."
Director of football Txiki Begiristain added: "Gabriel is undoubtedly one of the best young forwards in world football, so to have him commit his future to us is a huge boost.
“There’s so much variety in his game. I know how much Pep enjoys working with him and I am really looking forward to watching his development in the coming years.”
Jesus, who has 22 caps for Brazil, led the line for the Selecao at the World Cup in Russia but failed to find the net in five matches.
Despite that disappointment he is again set to challenge Sergio Aguero for a starting berth in the City line-up as they pursue more silverware following their league and Carabao Cup success in 2017-18.