The 28-year-old Turkey international, who was born in Germany and grew up just south of Dortmund, has been with the club on and off for the past 16 years. He signed his first professional contract in the summer of 2005 after coming through the BVB youth ranks.
"We are delighted that Nuri is staying with us," said Dortmund CEO Hans-Joachim Watzke. "He's a local boy, a really nice lad, and very attached to Borussia Dortmund."
Sahin, who has also held German citizenship since 2011, joined the Dortmund youth setup in 2001. At the start of the 2005/06 season, he became both the youngest player to ever appear in the Bundesliga (16 years and 355 days), and its youngest ever goalscorer (17 years and 82 days), two records that he still holds to this day.
After a loan spell at Feyenoord in the 2007/08 season, Sahin returned to play a central role in Dortmund's title win of 2010/11, and was voted the Bundesliga's Player of the Season after notching up six goals and eight assists. Following a move to Real Madrid and a loan spell with Liverpool, Sahin returned to BVB in January 2013, and has now made over 250 appearances for the club.
"Everyone knows how I feel about Dortmund – the city, the stadium, and our extraordinary fans," Sahin enthused. "My heart is with BVB."
Sahin is currently sidelined with an ankle injury sustained in the thrilling 3-2 victory over Borussia Mönchengladbach in Saturday's Battle of the Borussias, but the club are hopeful that he can return in time for the final few games of the season.
"Nuri has been unlucky with injuries over the past two seasons, but he has always shown that he can come back and play a very important role in our young team," said sporting director Michael Zorc. "We hope that Nuri will be able to play a part in the final sprint. His levels of sporting and human excellence will undoubtedly help us to achieve our season objectives."
Dortmund are currently third in the Bundesliga table with four matches to play, and take on Bayern Munich in the DFB Cup semi-finals on Wednesday evening.