Palmer, who joined Chelsea from Manchester City in a £42.5 million (49.7 million euros) deal last September, has committed himself to the London side until June 2033.
"I'm delighted to sign this new deal," he told Chelsea's official website.
"I achieved a lot in my first season here, and hopefully I can continue to experience great things at this club, both on a personal level and in terms of bringing success and trophies to Chelsea."
Palmer had a superb campaign last season, scoring 22 Premier League goals and was then a member of the England squad that reached the final of Euro 2024, where he scored an equaliser after coming off the bench in a loss to Spain.
He was also named the Premier League Young Player of the Year, with his goal tally including league hat-tricks in successive games at Stamford Bridge against Manchester United and Everton.
Chelsea, who finished sixth in the table last season, begin the new Premier League campaign at home to champions Manchester City on Sunday.
