The improved contract is recognition of the 21-year-old's outstanding debut season, when he made 34 appearances and far exceeded the expectations of Sir Alex Ferguson following a £7million summer move from Fulham.
It was enough to secure him a first Premier League title medal, while he was also part of the United side that defeated Chelsea in last season's Community Shield.
"I am delighted Chris has signed a new contract," said Ferguson. "Chris has been outstanding since joining us from Fulham last year.
"He is an extremely talented young defender. He is quick, strong and reads the game well. He is a great asset to the team."
Having been one of the few members of England's Under-21 squad to emerge with any credit from a disappointing European Championship campaign in Denmark last month, Smalling will return to United on Monday ahead of the flight to the United States for a five-match pre-season tour.
The departures on Thursday of long-serving duo Wes Brown and John O'Shea to Sunderland emphasise how much belief Ferguson has in Smalling, who has been joined at Old Trafford this summer by England U21 defensive partner Phil Jones.
"This is a great club and in the short time I have been here I have already achieved more than I could have ever expected to," said the Londoner.
I am looking forward to a long and successful career at Manchester United."