The 24-year-old has become a firm favourite with the City fans since joining in the summer of 2012 after objecting to his contract being transferred from his former club Rangers to a new company.
The Nigeria international, who hopes to be part of his country's squad at this summer's World Cup finals in Brazil, scored eight goals last season to help Steve Bruce's side gain promotion to the Barclays Premier League.
The new deal comes at a perfect time for Aluko who is closing on a first-team return having been confined to the sidelines for a number of weeks due to an Achilles problem.
Speaking on the club's official website, he said: "I'm happy to extend my stay here. I've said right from the beginning, when talk about a new deal first came about, that I was happy here.
"I also said that it might take time for the deal to happen and that is how it turned out. Because it took a while, people started making a story out of it and were saying that I was going to this place or that place. That was always irrelevant.
"I'm glad that it's done, but I never really thought it wouldn't happen. I'm happy here and things have turned out the way I thought they would.
"When I first signed, I said that the team was good enough to get into the Premier League and I felt that my second year here would be in the top flight. That is how it has worked out and I'm happy about that.
"I have to thank the manager and the owners of the club. I would also like to thank my team-mates for helping to make my time here a success. If it wasn't for them, there probably wouldn't be a new deal."