Saka, 18, has made 33 appearances this season, playing mainly down the left flank and has contributed three goals as well as 11 assists.
"Bukayo is a talented and intelligent young player," head coach Mikel Arteta told the club's website. "He has impressed me with his work ethic and attitude to learn and adapt, and it has paid off in his performances.
"I am excited to continue working with him to develop him further, and for him to help us achieve our goals."
Arsenal's technical director Edu said Saka's extension is a sign the club's academy is proving a success in the development of young players.
"This is something everyone involved wanted to happen and we are delighted that Bukayo has signed a new long-term contract," Edu added.
"He's making great progress and is one of a number of young players who have developed through our academy. This is so important for us as we move forward as a club."
London is my home. Arsenal my team. I'm so happy to finally announce my contract extension😄📝 I love playing for this club and I'm looking forward to what the future holds.. The hard work continues so I can continue living my dream🙏🏿❤️ God is Great !! pic.twitter.com/nS7G5nE9Pc— Bukayo Saka (@BukayoSaka87) July 1, 2020
Saka was handed his Premier League debut by former manager Unai Emery in a 4-1 win against Fulham on Jan. 1, 2019.
His first senior goal came in a 3-0 win at Eintracht Frankfurt in the Europa League in September last year.