The 22-year-old came through the Chelsea youth system and is now regarded as one of the best right backs in world football.
James has made 128 appearances for Chelsea, scoring 10 goals.
He has been instrumental in helping Chelsea win the UEFA Champions League and UEFA Super Cup since making his first team debut in September 2019.
Speaking to Chelsea's website, James professed his delight at committing his future to his boyhood club, declaring: "I am over the moon with my new contract and I'm thankful for the fans, the new ownership and everyone involved in the club.
"I cannot wait to see what the future holds, and I am sure we will have the chance of winning many trophies.
"I grew up supporting this club and I've been here since I was a six-year-old. I put pen to paper on a new deal because this is the club I want to be at. I'd like to say a special thanks to the fans, I am here to stay and we have a bright future ahead of us."
Blues chairman Todd Boehly added: "We are thrilled to give Reece a new long-term contract at Chelsea.
"He is an outstanding player and a true Chelsea man, and we are all looking forward to watching him continue to flourish at Stamford Bridge."
James has scored once and assisted another goal in five Premier League appearances so far this season.
