A number of the Premier League's big guns, including Chelsea, Manchester United and Manchester City have held a long-term interest in Subotic and were linked moves for the 23-year-old.
The Serbia international has earned himself a reputation as one of the best defenders in Europe after impressing for club and country over the last couple of seasons.
Dortmund revealed earlier this month that they were in talks with Subotic over a new deal and now an agreement has been reached between all parties
Subotic's existing contract was due to expire in 2014 and Dortmund have moved to offer him a two-year extension to keep him the Westfalenstadion until 2016.
News of Subotic's new deal will come as a major boost for Dortmund as they look to keep hold of their best players as they look to build on their impressive campaign in the UEFA Champions League so far this season.