The new deal ties the 27-year-old Wales international to the European champions until June 30, 2022.
Bale joined Real from Tottenham in 2013 for a then-world record fee of £85.3million, signing a six-year contract at the Bernabeu.
A club statement read: "Real Madrid and Gareth Bale have agreed an extension to the player's contract, keeping him at the club until the 30th of June 2022.
"Tomorrow, Monday at 1:30pm (local time), Gareth Bale will appear at a press conference in the media room at the Santiago Bernabeu."
Bale has scored 62 goals and recorded 34 assists in 135 official games for the Spanish giants, forming part of the team's much-vaunted 'BBC' strikeforce alongside Cristiano Ronaldo and Karim Benzema.
He has also helped Madrid lift five trophies during his three years at the club, including winning the Champions League in 2014 and 2016.
Bale, who has regularly been linked with a big-money move back to the Premier League with Manchester United, is the latest Real player to commit his future to the club in recent weeks, following in the footsteps of Toni Kroos, Luka Modric and Lucas Vazquez.
Madrid have been looking to tie down their leading players as they also fight a FIFA transfer ban for breaching rules governing the transfer and registration of players aged under 18.
The club, along with city rivals Atletico, are currently banned from registering any new players in the next two transfer windows - until January 2018 - but have appealed against the ruling to the Court of Arbitration for Sport (CAS).
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