Drinkwater was outstanding for the Foxes last season as they won promotion to the Premier League.
He made 43 starts, scored seven goals and was named in the Championship team of the year.
"I am delighted to sign the new contract," he told the Leicester Mercury. "It was a step I have wanted to take for a while now and I am glad it is finally done.
"I can get my head down now and concentrate on the season.
"It settles me again and I will be able to concentrate on my training and get back playing. Hopefully, I can keep showing everyone what I am made of.
"I didn't need much persuading. It was a good season for me personally. I was in a pretty strong position and I am sure the club knew that, and the club was in a great position so it was just right that we both were able to come to an agreement and I could sign."