The 26-year-old's previous agreement was due to expire at the end of the upcoming season, but the academy graduate has chosen to extend his long association with City as he begins a new era under head coach Enzo Maresca.
Foden, who joined City's academy at the age of four, has spent his entire senior career at the Etihad Stadium and has made 369 appearances for the first team since making his debut against Feyenoord in the Champions League in 2017.
During that time, he has become one of the most decorated players in the club's history, winning six Premier League titles, a Champions League, three FA Cups, five League Cups, a Club World Cup, a UEFA Super Cup and three Community Shields.
"Committing my future to City means everything to me. Playing for this club is all I've ever wanted to do and it's always an honour to wear the shirt," Foden said.
"It's not lost on me that I've been lucky enough to be part of a historic period with so many titles won, but we're always looking to the future and trying to win more.
"I can only thank the club, staff, team-mates and fans who continue to put their faith in me and trust that I give everything I can for City."
Foden will now begin the next stage of his career under Maresca, who worked as an assistant to Pep Guardiola during City's Treble-winning 2022-23 campaign.
The midfielder said he was excited by the opportunity to reunite with the Italian coach, who returned to City following Guardiola's departure after a decade in charge.
"I can't wait to work with Enzo again. He was brilliant during the Treble season - someone all the players respected and loved working with," Foden added.
"His attention to detail, the small things that make a big difference, and even training with him at the moment, you can tell how good of a coach he is."
Foden enjoyed the best season of his career in 2023-24, scoring 27 goals and providing 12 assists as he was named Premier League Player of the Season. However, his form dipped over the following two campaigns as his role within Guardiola's team changed.
Last season, Foden made 23 Premier League starts, scoring seven goals and registering five assists in 33 appearances. The emergence of Jeremy Doku, Antoine Semenyo and Rayan Cherki reduced his attacking influence, with the midfielder often deployed in deeper positions.
His inconsistent campaign also saw him miss out on Thomas Tuchel's England squad for the World Cup, with the Professional Footballers' Association describing him as a player affected by the demands of an increasingly crowded schedule.
Despite those setbacks, City remain confident Foden can play a key role in the club's future. The midfielder has scored 110 goals for the first team and is among only three Premier League players — alongside Mohamed Salah and Ollie Watkins — to have reached double figures in all competitions in each of the past six seasons.
With several senior figures leaving the Etihad, Foden is now set to become one of the leaders of a new-look Manchester City side under Maresca.
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