The Everton left-back, 20, moved to the Essex outfit in mid-September and has to date made 18 starts in all competitions, scoring three goals.
Garbutt saw his existing deal expire over the weekend but he will now remain at the Weston Homes Community Stadium until at least February.
U's boss Joe Dunne told the club's official website: "It's great we have been able to extend Luke's time here.
"He has shown his qualities in his time here, both defensively and when he attacks, and we were obviously keen to keep him longer.
"I'd like to thank Everton for allowing it to happen and I'd like to think that we've given him valuable experience and development towards becoming a Premier League player for them."