The Solihull-born 20-year-old, who had signed a four-year deal in October 2014, has now tied himself to Villa until the summer of 2020.
Grealish has scored three goals in his 52 appearances for Villa since his debut at the end of the 2013-14 season.
That followed a season spent largely on loan with League One side Notts County.
He played for the Republic of Ireland from Under-17 through to Under-21 level before switching to England, since when he has won five Under-21 caps and was on former England boss Roy Hodgson's radar.
"Everyone knows this is a club I love dearly," said Grealish, who turns 21 on Saturday, the day before Villa's next home Championship game against Nottingham Forest.
"It's the place I want to play my football. Bodymoor Heath provides a great environment in which to continue my football education and to call Villa Park home is something I will never take for granted.
"We're looking to return to the Premier League. I want to be a big part of that process and will be doing everything possible to make that a reality."
Grealish is arguably the most naturally gifted player ever to come through the ranks into Villa's first team. His most notable performance was at Wembley in the FA Cup semi-final against Liverpool in 2015.
His decision to choose England over the Republic of Ireland grabbed a few headlines just as he seemed to lose his way with off-the-field issues, but his talent is undeniable.
This season, under Roberto di Matteo, he has been given regular first-team football and is having all areas of his game worked on. He already has two goals and is noticeably more active in helping out the team when not in possession.
Grealish has the God-given talents to go a long way in the game but is also one of those players that, at times, has frustrated. The club clearly see him as a player that will only get better.
I agree with that. He is working harder and producing more already this season. Now he's settled with a new deal, things can only get better for him and for Aston Villa.
Aston Villa's England Under-21 midfielder Jack Grealish has signed a new, improved four-year contract with the relegated Championship club.