The Denmark international, 29, played in all 38 of the Foxes' league fixtures last season, keeping 15 clean sheets.
He has made more than 200 appearances for Leicester since arriving from Leeds United in 2011, having started his career at Manchester City.
"We've taken some massive steps and ever since I arrived it's been fantastic," Schmeichel told LCFC TV.
"It was a case of coming back after winning the Premier League and making sure that the hunger was the same within myself and the squad. I've come back absolutely convinced that this is the place for me to be."
Boss Claudio Ranieri has said the club will not sell anymore of their best players after N'Golo Kante joined Chelsea last month.
England forward Jamie Vardy also signed a new deal with the champions in June, ending speculation that the 29-year-old would join Arsenal.
The Foxes begin their season with the Community Shield at Wembley on Sunday, when they face FA Cup winners Manchester United.
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Goalkeeper Kasper Schmeichel has signed a new five-year deal with Premier League champions Leicester City.