The 28-year-old joins Aleksandar Kolarov, Samir Nasri and David Silva in committing his future to the Barclays Premier League champions ahead of the start of their title defence.
Kompany has been a central part of City's success since his arrival at the Etihad Stadium in 2008 from Hamburg, twice being part of a title-winning side.
And the Belgium international is looking forward to tasting more success with City, as he told the club's official website: “When I arrived in 2008, I could never have dreamed that we could achieve what we have over the last six years but, for me, this is just the start of the journey.
“This team is stronger now than it’s ever been; we have competition for places in every position and a dressing room full of exceptional, motivated people who want to continue making history together.
“Lifting two Premier League titles, the FA Cup and the Capital One Cup have been four of the best days of my life but I believe that there are many more of these occasions ahead.
“We have a common goal and so much to look forward to - a family of clubs, the opening of City Football Academy, exciting players coming through our youth system – why would I go anywhere else?”
Watch Manchester City open the defence of their Premier League title at Newcastle on Sunday, live on Sky Sports 1 HD from 15:30