The Brazilian, 32, was out of contract at the end of the season so speculation surrounding his future increased as the campaign went on.
But Luiz, who helped Chelsea reach the Europa League final on Thursday night, has put that speculation to bed and has committed himself to the club until 2021.
He said: “I am so happy to be here and to have this opportunity to stay. I love this club and I still have the ambition of a young player.
“It means a lot to reach another European final, and we still have the opportunity to finish in the top three of the Premier League this season and I will continue to try to do my best to help the team.”