Davies has been with Spurs since the summer of 2014 when he joined from Swansea City.
Davies has made 270 appearances in his time at the club and his new deal will take him past a decade in North London.
Primarily a left-back, Spurs manager Antonio Conte utilised Davies in his favorite back three system last season and the Wales international impressed as the Lillywhites pipped Arsenal to the final Champions League spot, making 43 appearances across all competitions.
Tottenham have strengthened this summer with six new signings including Yves Bissouma, Richarlison, Clement Lenglet and Djed Spence.
"I'm delighted to sign my new contract. After last season and the summer, the club decided that there's no more exciting time than right now to be at this club," Davies told Spurs Play.
"I was enjoying my football and when the opportunity from the club came to extend my contract, I was more than happy to do so.
"I've had some really enjoyable times here, it really feels like home now and the story continues. This is a significant amount of time in football when careers are short and people move around a lot.
"It's an honour for me to be here. There's still a good core of us that have been here a very long time now. We've brought players in that will improve the squad and hopefully make us more competitive throughout the season.
Davies is set to feature for Wales at this year's FIFA World Cup in Qatar.
"We have a pretty jam-packed schedule around the World Cup but it's an exciting time for club and country," the 29-year-old added.
"It'll be a bit strange stopping mid-season but I can't wait, it's been a long time since Wales have been there."
