The Spaniard, who joined the Japanese manufacturer in 2008 after winning two world 250cc crowns, captured the MotoGP world title in 2010 before finishing second behind Casey Stoner last year.
Lorenzo has been in brilliant form this season, winning three of the first five races and finishing second in the other two and holds a 20-point advantage in the riders’ standings.
He will be looking to celebrate his new commitment to Yamaha by extending his championship lead over Australia’s Stoner with victory at the British Grand Prix this weekend.
“I’ve been treated like part of the Yamaha family since 2008 and I love working with them,” the 25-year-old said in a news release.
“Now I can focus on the championship and I’m looking forward to paying back Yamaha’s trust in me starting at Silverstone this weekend.
“My dream to finish my career with Yamaha is now closer to becoming a reality.”