The 19-year-old, who has been attracting the attention of some Premier League clubs during the past two seasons, had two years remaining on his existing deal at the iPro Stadium.
Hughes becomes the fourth player to commit his future to Derby following fellow midfielders Jeff Hendrick and Craig Forsyth and central defender Jake Buxton.
Derby boss Steve McClaren believes Hughes has a lot to offer County, and he is delighted the player is committed to the club until 2018.
McClaren said: "We're pleased that Will has decided to extend his contract with Derby County for the next four years.
"He is a promising young talent and we're looking forward to working with him over the next few years to help continue his development."
The England Under-21 international came through the youth ranks at Derby, and made 48 first-team appearances last season as the club narrowly missed out on promotion to the Premier League after losing to QPR in the play-off final at Wembley.
"Delighted to have signed a new deal at Derby," Hughes tweeted. "Hoping for a big season this year."