The Germany playmaker, 19, has become a sensation in the Bundesliga in the past two seasons and had been tipped to leave for the Premier League or La Liga, with Arsenal constantly linked with a swoop in the close season.
But the defending Bundesliga champions and current leaders said that his previous contract, set to run until the summer of 2014, has been extended by a further two seasons.
"Everyone knows how happy I am at Dortmund," Goetze said.
"The team is still developing and I want to be part of this development."
Dortmund general manager Michael Zorc said he was delighted with the news.
"We are very happy to have agreed a vision for the future with Mario," he said.
The club added that they had fended off "top-class competition" to hang on to their prized asset.
Dortmund coach Juergen Klopp had previously insisted that the midfielder would be going nowhere in the summer.