The 27-year-old, who scored 14 league goals for Celta last season, had been linked with a move to Premier League side Everton this summer.
However, the highly-rated striker has now committed his future to the La Liga outfit.
"I'm very happy and hope to repay this faith on the pitch," he told Marca. "It's a great happiness for me. I'm very happy, very happy for my wife and my son.
"People have treated me well from the beginning and Celta was my first choice. The club made the effort to renew and I'm happy, God willing, to stay here for many years."
Nolito joined Celta from Benfica in 2013.