The extension is in line with Real Madrid's tradition of tying down their most prized assets to long-term deals with huge release clauses.
Valverde has a €1bn release clause included in his Real Madrid contract.
The 25-year-old Uruguay midfielder joined Real Madrid from Penarol in 2016.
He joins the likes of Eduardo Camavinga, Rodrygo Goes and Vinicius Junior in penning long-term contracts at the Santiago Bernabeu.
An official statement from Los Blancos read: "Real Madrid C. F. and Fede Valverde have agreed an extension to the player's contract which will see him stay at the club until 30 June 2029.
"Valverde arrived at Real Madrid in July 2016 at just 18 years of age. In his six years playing for the first team, he has quickly become one of the best central midfielders in world football.
"He's made 220 appearances, scoring 19 goals and winning 9 titles: 1 Champions League, 2 Club World Cups, 1 European Super Cup, 2 LaLiga titles, 1 Copa del Rey and 2 Spanish Super Cups.
"Valverde was also named MVP in the Spanish Super Cup 2020 and took the Silver Ball at the Club World Cup 2023."
Valverde has made 16 appearances across all competitions for Real Madrid this season, scoring one goal and providing three assists.
