The 22-year-old joined Nathan Jones' side in the summer after being spotted by chief recruitment officer Mick Harford playing for Truro City.
Vassell has scored twice in 23 appearances and the Hatters have taken up the option in his previous deal.
"Over the five months since he's been here he's done really well to impress us and grasp his chance," said Jones.
Luton Town striker Isaac Vassell has signed a new contract with the League Two side until the summer of 2018.