Ake's new contract will expire in the summer of 2027.
The 28-year-old joined Manchester City from Bournemouth three years ago for £41m and has made 81 appearances in his time at the club.
Ake featured 41 times for Pep Guardiola's side last season as they won the Premier League, FA Cup and UEFA Champions League.
“This is the best club in the world, I have no doubts about that,” the Netherlands international told Manchester City's official website.
“Being a Manchester City player makes me incredibly proud every single day.
“It’s a football club that expects excellence in every area, which makes for the perfect environment to improve. It drives me on and makes me better. I am at the stage of my career where I want to keep developing and I can definitely do that here.
“Pep is the best manager in football – a genius who has made me see the game differently – so to be able to work with him for longer is a real privilege. I am so grateful to him for everything he has done for me, both personally and professionally.
“I also want to thank the City fans for their support. I have really felt it since I came here, and it helps me so much. My focus now is on making them proud and winning more trophies.”
Director of Football Txiki Begiristain added: “We have been delighted with Nathan’s development, so it’s great news for this football club that he is extending his time with us.
“There is no doubt he was a very important part of our Treble success last season, but I believe he can be even better.
“Technically, tactically and physically he has everything we want in a defender – and he is so professional, dedicated and willing to learn, which for Pep is an ideal scenario.
“Nathan is also an incredible human being who has the respect of absolutely everybody at the Club. I am really happy for him and his family, and I am excited to see what more he can achieve here at City in the coming years.”
