The Croatia international joined Monaco in January last year, helping the club to promotion to the top flight and then retaining his place even as big money was spent to upgrade every other department of the team.
He has kept four clean sheets as Monaco have remained unbeaten after the opening nine games of the season.
"The club has confirmed its confidence in me and that's very important for me because Monaco has become my second home," Subasic told the club's website.
"When I signed here, the aim was to win promotion back to Ligue 1. Today, here we are, and we have made an excellent start to the season. It's a fantastic adventure to be a part of."
Vadim Vasilyev, Monaco's vice president, added: "We are delighted with this contract extension. Danijel Subasic is playing well, he's working hard and he really deserves it. We are continuing to move forward together."