The Wales defender signed a three-and-a-half-year contract last November and has now added another year to the deal.
Davies has played 44 times for the Swans and his performances have caught the eye of Wales boss Chris Coleman, who handed him his senior international debut against Scotland last October.
"I'm very happy to have signed the new contract," Davies said. "It wasn't a difficult decision and it's always great to sign a new deal and commit my future to the club.
"This is a great place to learn and improve and it's nice to be rewarded for all the effort I've put in.
"I feel as though I'm getting better all the time and this is a good place to play football, especially with the style of play we have at the club.
"I think it's the right place to be at in terms of my career, and if I'm playing regularly and I'm happy then that's the main thing and all I can ask for.
"This is exactly what I would have wanted if I was to make it into the first team here, and fortunately I've been able to do just that.
"I'm very happy with how things have gone and it is great to get that reward for all the hard work over a period of time."