The Germany international, who is currently on a season-long loan at Borussia Monchengladbach, is now tied to Leverkusen until the end of June 2019, with his previous deal due to expire in the summer of 2017.
Kramer helped Gladbach end the year in fourth place and his recent performances have prompted media reports that he was being targeted by a whole host of leading European clubs.
The 23-year-old has helped to quell that speculation, however, by agreeing new terms with Leverkusen, who drew 1-1 with Eintracht Frankfurt on Saturday to cement third spot ahead of the six-week winter break.
Kramer, who will return to Leverkusen at the end of the season, revealed he jumped at the chance to extend his stay at the BayArena.
“After the talks with the leaders in Leverkusen I did not have to hesitate long to extend my contract there,” he told the club’s official website.
“The total package with the team, coach and the club itself just fits. I have known Bayer since my youth, it was always my dream to make it there in the first team.
“This has been achieved through the detour of VfL Bochum and Borussia Monchengladbach and this is a great happiness for me.”
Kramer, who has been linked with a move to Arsenal, has won eight caps for Germany since making his international debut in a pre-World Cup friendly against Poland in May.
The defensive midfielder started the World Cup final in July after Sami Khedira picked up an injury in the warm-up, but was forced from the field early on after taking a heavy blow to the head in a collision with Argentina defender Ezequiel Garay.