The talented 21-year-old has broken into Dortmund's first team plans this season, a year after completing a move from Mainz, and made his debut on the opening day of the season in a 4-0 victory over Augsburg.
Big things are expected of the Germany U21 international at a side who reached the final of the 2013 UEFA Champions League.
Dortmund have an abundance of riches at their disposal, but also place plenty of emphasis on the nurturing of young talent.
They see Durm as an integral cog in their future and have moved to tie his services down until 2017.
Dortmund's general manager Michal Zorc told the club's official website: "Erik Durm is a talented young professional.
"He has shown, like others have before, that you can still achieve a first team squad place through good performances in the reserve team matches."