The 34-year-old England midfielder, who broke Bobby Tambling's all-time Chelsea scoring record of 202 goals this month, will remain at Stamford Bridge for a 13th season.
"We have been talking to him since the end of last year and our discussions have been entirely positive throughout. We are delighted we are now announcing an extension to his contract which will keep him at the club until 2014," chief executive Ron Gourlay told the club website.
Lampard said he was delighted: "Everybody knows I always maintained the dream was to stay at Chelsea. We've been talking for ages and even though it went on for quite a period it was always amicable.
"The thought of helping the club to more success in the forthcoming years is all I ever wanted. I couldn't be happier."
Lampard, who captained Chelsea in their Europa League final against Benfica in Amsterdam on Wednesday after John Terry failed to recover from injury, joined the London club from West Ham in 2001.
In his time at Chelsea, he was won the Champions League, the Premier League three times, the FA Cup four times and the League Cup twice.
Lampard, voted Chelsea's player of the year three times, has made 560 starts for the club and come on 47 times as a substitute, putting him third on the list of appearances.
With his existing contract about to expire, Lampard's future had been the subject of intense media speculation.
Chelsea are third in the Premier League with one match to play and are sure to qualify for the Champions League next season.
Lampard said last week that he would love to see the return to Chelsea of Jose Mourinho, who has been tipped to leave Real Madrid and take over from interim manager Rafael Benitez.
