The 23-year-old defender, who qualifies as a home-grown player after joining the club's youth set-up in 2006 at the age of 16, made his City debut in 2010 and featured in six games in all competitions this season.
He made his international bow for Belgium in the 4-4 UEFA Euro 2012 qualifier against Austria but that remains his only cap.
Boyata, whose deal will keep him at the Etihad Stadium until 2016, has had loan spells with Bolton Wanderers and Twente, while he picked up a League Cup winners' medal with City this season after featuring in four matches in the competition.
City are thought to have kept the Belgian on in order to boost numbers of home-grown players in their squad - as Financial Fair Play sanctions handed down by UEFA limit their spending capabilities in the upcoming transfer window.
Premier League clubs must include eight home-grown players in their squad of 25 for the season.
A player qualifies if he has been with the club for a period of three entire seasons, or 36 months, prior to his 21st birthday or by the end of the campaign in which he turns 21.
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