The 20-year-old is a product of the famed academy system at Santiago Bernabeu and has caught the eye for Real's 'B' side.
He has figured in the senior set-up, but faces intense competition for places in creative berths.
Jese himself has admitted in the recent past that he was unsure what the future held for him in the Spanish capital, as speculation linked him with a move to Tottenham Hotspur.
Real are, however, reluctant to see players of potential slip through their grasp.
Jese has just one year remaining on his current contract but, after starring at the U20 World Cup for Spain, will be given every opportunity to prove he is deserving of an extension in 2013/14.
Real's technical director Miguel Pardez said: "Jese will be staying with us.
"He forms part of a brilliant generation and has already shown what he can do with Castilla."
Club president Florentino Perez said earlier in the week: "I have a feeling that (Zinedine) Zidane wants him to stay with us."