Kerr, who joined Chelsea midway through the 2019-20 season, has established herself as a lethal goal scorer in the Women's Super League with 39 goals, running away with the Golden Boot last season with 21 strikes in 22 games.
The 28-year-old has played in Australia and the United States but said winning trophies with the London club meant her decision to stay was a "no-brainer."
"I think the club gives me every opportunity to succeed as a player," Kerr told the club's website.
"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 Matildas striker is the first player to win the Golden Boot on three different continents, and she leads the race this season as well with six goals.
But her primary aim is defending the title, with Chelsea sitting second, a point behind Arsenal.
"I'm not going to lie, it's nice when I do win them but that's not my main goal at the start of the year.
"It's a nice reward, but if I won Golden Boot after Golden Boot and no trophies, it wouldn't be that rewarding to me.
"So that's why last season winning the Golden Boot and winning the league was really rewarding because finally it meant something."