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The 19-year-old attacking midfielder has impressed off the bench for Paul Lambert's side this term after a long-term loan spell at Notts County in League One last season.
A Republic of Ireland under-21 international, Grealish came through Villa's youth system and his new deal is likely to ward off reported interest from the likes of Chelsea and Manchester City.
The Birmingham-born midfielder, who scored five goals in 39 appearances during his time with Notts County, spoke of his pleasure at being able to secure his future.
Article continues below"I'm delighted and it's a dream come true to commit my future to my boyhood club," he said via Villa's official Twitter account.
"I've had a season ticket at Villa since I was four years old and came to every game, so this is a big thing for me and my family."
Grealish, who can play centrally or on the wing, has made four top-flight appearances for Villa this term, all as a substitute.
His sole start to date came in a League Cup defeat to Leyton Orient in August.
