The 20-year-old midfielder - who made 16 first-team appearances for Liverpool last season - finalised his new deal on Tuesday morning.
Shelvey hopes to play an important role under new manager Brendan Rodgers, who is known to favour a short-passing game in midfield.
"It's lovely to know I am in the plans for the future," Shelvey told the club's official website.
"At the moment, it's just about getting things right each day and proving myself to the gaffer here.
"The gaffer and his way of playing will suit me down to the ground and hopefully I can be in his plans.
"I think he's great. With all the passing drills he's doing, he's encouraging us to play all the time which is nice for a football player.
"Instead of doing a lot of long-distance running and things like that in pre-season, everything has been with a ball, which is more enjoyable. Everyone is enjoying training and looking forward to coming in."