The England Under-21 international spent last season on loan at Watford, and he has been rewarded for his performances with a new deal until 2018.
The 18-year-old told the club's official website: "It is great for me that Chelsea are willing to give me such a long contract, it is a big confidence boost.
"I think I have developed a lot as a player but I know I must continue to improve to earn a place in the Chelsea team and with my future settled, I can concentrate on doing that.
"Watford was a great experience, I learned about playing in front of a crowd every game and so many other lessons that there are too many to list. Training with Jose Mourinho and the Chelsea squad this pre-season, every session has been different with something new to take on board. I've enjoyed it a lot."
Chalobah, who can play in defence or midfield, has yet to make his competitive debut for the Blues.