The 26-year-old, who has formed an impressive partnership with the equally highly-rated Mats Hummels, is now contracted to the Bundesliga side until June 2018.
Dortmund, who signed midfielder Gonzalo Castro on Monday, are beginning life without Jurgen Klopp as Thomas Tuchel replaces him in charge.
Subotic took to Instagram to show his delight at signing a new contract, and he told the club’s official website he feels settled where he is.
“I’m extremely happy about my decision to stay with BVB,” he said.
“Dortmund has now become my second home. I’m now looking forward to a successful future with our team and our fantastic fans behind us. We have a great deal to do in the immediate future, and I want to make a big contribution.”