The Spain international, who arrived at the London club in 2012 as a right back, has been a regular at left back, preferred by manager Jose Mourinho to former England international Ashley Cole, who has moved to AS Roma.
Azpilicueta has made 95 appearances for Chelsea, scoring a single goal, and was a member of the side that won the Europa League trophy in 2013.
Last season he was voted the club's players' player of the year.
He has started all three of Chelsea's Premier League matches this season.
Last season he was part of the Chelsea defence that conceded just 27 goals in 38 games - the lowest total in the league.
The 25-year-old moved to Stamford Bridge from Olympique de Marseille for a fee of about 6.5 million pounds ($10.72 million) two years ago.
His contract extension comes despite the club's acquisition in the close season of Filipe Luis, who was Atletico Madrid's left back when they won the Spanish League last season.
In a statement on its website (www.chelseafc.com), the club said: "Chelsea Football Club is pleased to announce Cesar Azpilicueta has today signed a new five-year contract."