The 26-year-old Brazil international has been a central figure in Real's attack in recent seasons and had been linked with a move to English champions Arsenal.
His previous contract was due to expire in June 2027.
"Real Madrid and Vinicius Jr have agreed to extend our player's contract, which now keeps him with the club through June 30, 2032...," Real said in a statement.
"Vinicius has become one of the most important players during one of the most successful periods in our history."
Since joining from Brazilian club Flamengo in 2018, Vinicius has scored 128 goals and registered 100 assists for Real.
Spanish and British media had reported prolonged contract negotiations between the player and the club, while Arsenal were said to be monitoring the situation and exploring a potential move.
The extension removes the prospect of Real losing one of their most valuable players on a free transfer.
The forward has built an impressive trophy collection during his time in Madrid, winning two Champions League titles and three LaLiga crowns among numerous other honours.
He is set to work under Jose Mourinho for the first time after the Portuguese coach returned for a second spell in charge at Real in June.
The appointment followed a disappointing campaign for the record 15-time European champions, who finished runners-up to arch-rivals Barcelona in LaLiga, exited the Champions League in the quarter-finals and ended the season without a major trophy.
Tying down Vinicius represents another significant step in an active summer for Real.
The club have also strengthened their squad with the arrivals of winger Yan Diomande, midfielder Bernardo Silva, centre back Ibrahima Konate, left back Marc Cucurella and wing back Denzel Dumfries ahead of the new season.