Mahrez had one year remaining on his previous contract but will now be remaining at the Etihad Stadium for the foreseeable future.
The 31-year-old joined Man City from Leicester City in the summer of 2018 for £60m and has so far contributed 63 goals and 45 assists in 188 appearances for the Citizens.
Mahrez was Man City's top scorer last season, finding the back of the net 24 times in 47 games to win his third Premier League title with Pep Guardiola's side.
The 2016 PFA Player of the year has also won three League Cups and one FA Cup with Man City.
Speaking to mancity.com about his new contract, Mahrez said: "I'm very happy to sign the new deal. I have enjoyed every single minute of my time here. It's a pleasure to be part of such an incredible club.
"To have helped us achieve the success we have enjoyed in the past four seasons has been unforgettable and made us all hungry to look to achieve even more.
"I would also like to thank Pep, Txiki [Begiristain] and the coaching staff, both for the way they have helped me to develop as a player and for pushing me to continue to improve.
"Now I just want to try and play my part in helping us be successful next season and beyond."
Man City director of football Begiristain added: "Riyad has played a major part in our success in the four years since he joined us, and we are all delighted he has agreed this new deal.
"He has brought so much to the club with his skill, talent, commitment, and desire to win evident from the moment he first arrived. I also know that Pep and the coaching staff relish working with Riyad.
"He is one of the most exciting wingers operating in the game and we are all very excited to know he will be part of our ongoing drive to try and achieve more success."
