Grosskreutz's previous deal was due to expire at the end of next summer, but he has on Tuesday put pen to paper on a new deal for his hometown club.
"I am happy playing for the Blacks and Yellows," said the 24-year-old. "Borussia Dortmund was always my priority and I will give everything I have got to be successful with this club.
"I was, I am and I remain a Borussian."
Dortmund have already tied up long-term deals for the likes of Neven Subotic, Sven Bender, Lukasz Piszczek, Jakub Blaszczykowski and Mario Gotze this season and convincing Grosskreutz to stay means they can plan for the future with a largely unchanged squad.
"Kevin has always been a player with a high degree of identification with Borussia Dortmund and we are pleased that we have been able to tie another key component of our team down in the long term," said Dortmund's director of sport Michael Zorc.