The Spanish international defender had signed a four-year deal in 2018 that was due to end this year, but reports said Chelsea had triggered a one-year extension before offering him a new contract that will further extend his stay in London.
"I'm really happy to extend my stay at Chelsea, my home," Azpilicueta, who joined Chelsea from French side Marseille in 2012, said.
"It is almost 10 years since I first arrived and joined the club so I really feel the love and I'm really excited for the new project we have in our hands."
Azpilicueta had been linked with a switch to Barcelona, who signed former Chelsea defender Andreas Christensen (26).
Antonio Rudiger (29) also left Chelsea to join Real Madrid on a free transfer during the close season.
Chelsea chairman Todd Boehly said he was delighted the club could hold onto Azpilicueta, who has lifted two Premier League titles, the FA Cup, the League Cup, two Europa League crowns, the Champions League and Club World Cup with them.
"We are thrilled with our captain showing his exemplary commitment and leadership yet again. There is still so much to do together," Boehly said.
Chelsea start their Premier League campaign against Everton on Saturday evening, which you can follow live with Flashscore.
