Kerr joined Chelsea from American side Chicago Red Stars in November 2019 and has scored 39 goals in 47 appearances for the Blues.
The 28-year-old has won two Women’s Super League titles since moving to Chelsea and helped them reach their first Women’s Champions League final last season, losing to Barcelona.
Kerr won the top scorer award in England last season with 21 goals in 22 games, adding to golden boots she won in the top flight of American and Australia football.
"It's really exciting. I'm really happy at the club. We've had good success, being at a club like Chelsea is an amazing opportunity,” Kerr said.
"The time was just right, I feel really comfortable being here. I think the club gives me every opportunity to succeed as a player.
"I can't see myself going anywhere else in the world or leaving Europe, having what I have at Chelsea.
"The time was right, honestly, I didn't feel like I wanted to rush into anything, just like signing here the first time, it just happened naturally."
"The team speaks for itself, every day at training playing with world-class players; getting challenged every day and winning trophies at the same time," Kerr added.
"I hadn't won much when I came here and after last season, I think it's just a no-brainer for me to stay."
General manager Paul Green added: "We are absolutely delighted that Sam has extended her deal with the club. Sam is quite simply one of the world's best strikers and goalscorers.
"We look to continue to build on our recent successes, and Sam will play a big role in achieving those targets in the future."
Kerr has won 102 caps for the Australia national team.
