Young, 33, had only a few months left on his existing deal but had stated his desire to stay at Old Trafford.
The Stevenage-born player joined United in 2011 from Aston Villa and has made 228 appearances for the club, scoring 17 goals.
Last March, United had exercised a clause in Young's previous deal to extend his terms for a further season, taking him up to the end of the current season.
He has established himself as a key member of the United squad and has made 25 appearances this season, scoring once.
Last summer Young helped England reach the semi-finals of the World Cup, and he has now been capped 39 times.
Ole Gunnar Solskjaer believes his Manchester United side have the talent to surprise people in the Champions League.
United face Paris St Germain in the round of 16 on Tuesday, looking to extend their unbeaten run to 12 following a dramatic upturn in fortunes since Solskjaer's arrival as caretaker boss.
They remain unfancied in Europe, but Solskjaer said: "I think the squad is very capable of winning against any opponent. When we go into games confident as we are now, in form, we are looking forward to the game."