McLoughlin, whose current deal was set to expire this weekend, will extend his stay at stadium:mk by another two years. The contract also includes the option of a further 12 months.
"I think Ian knew in his heart he was going to be here next year and I wasn't worried for one minute," said boss Karl Robinson.
"I was confident he would come to Ireland with us on the pre-season tour and that he would want to further his career with us.
"Tremendous credit needs to go to Paul Heald, who has been a wonderful mentor to Ian and so has David Martin. The competition is on for the two of them to battle it out for the number one spot.
"Ian is definitely one for the future so I am excited to have acquired his services for another two years. He is someone who I think will go from strength to strength as a goalkeeper and he is a wonderful character to have around the place.
"He did extremely well last year, after settling into the first few games he settled into our style of play, he worked with me and Paul Heald to improve on his feet and his passing and he became a real asset to us, which is why we were keen to keep him at the club beyond the summer."
Last season the Dublin-born goalkeeper showed his credentials when he stepped into the first team following an injury to Martin.
The 21-year-old, who had made just three appearances for the Dons prior to breaking into the side in late February, went on to feature in the final 16 games of the season and kept an impressive nine clean sheets in the process.
McLoughlin also enjoyed a successful loan spell with Walsall last season. He made six appearances for the Saddlers but was recalled from his loan following Martin's injury.