The 22-year-old full-back's previous deal at Dortmund ran until 2017, but he has agreed fresh terms to tie him to the Signal Iduna Park outfit for the next five years.
Durm moved to Dortmund from fellow German side Mainz in 2012 and made 19 Bundesliga appearances last term after fellow left-back Marcel Schmelzer encountered several injury problems.
His form convinced Joachim Low to include him in Germany's winning 23-man squad at the World Cup in Brazil.
"Borussia Dortmund have intensively [helped] my development, so that I can be the player I am today," Durm told the club's official website.
"It is natural for me to appreciate this and bind to me to the club. I am totally convinced of the BVB way. I want to be part of it as long as possible."
Sporting director Michael Zorc added: "Erik is a great, down to earth boy who fits perfectly with Borussia Dortmund.
"For us it was very clear that we take account of his excellent athletic development and extend his contract long term."