The 26-year-old Ghanaian joined Hearts in the summer on a deal until the end of the season.
And his displays for Robbie Neilson's unbeaten Championship-leaders prompted the club to tie him down on a new contract.
"I'm very pleased to get the deal done, I always wanted to stay here," Buaben told the Hearts website.
And the former Dundee United and Partick Thistle midfielder added: "The football suits me as we play a good passing game.
The main thing for me was to have both Robbie and Craig [Levein, director of football] telling me that they wanted me to be here, and to get the security of a longer deal is great as well."
Head coach Neilson said: "He's a top player and has been huge for us, a real integral part of the season. The pleasing thing is there's a lot more to come from him.
"We could've lost him in January but he wants to stay and that's great. Prince signing a long-term deal is as important as bringing in new players. It's important that we get our stars tied up on deals and happy.
"Prince has a great attitude and is well-respected by his team-mates, and is a great player for the young boys to look up to."
Hearts midfielder Prince Buaben has penned a contract extension that will keep him at Tynecastle until 2018.