The 22-year-old, who scored his first senior goal for the Magpies in last month's 2-2 draw with Liverpool, has put pen to paper on a new deal that could see him stay on Tyneside until June 2019.
"I am delighted to secure my long term future with Newcastle United," Dummett told the club's official website.
"Like so many local lads it has been my boyhood dream to play for this Club and now I am looking forward to repaying their faith in me and working hard to be the best possible player I can be.
"This is a great moment for my family and so many others who have supported me over the years, and I would like to thank them all."
Newcastle manager Alan Pardew added: "Paul fully deserves his new contract and we're delighted for him.
"He has been with us since the age of nine, progressing through our Academy which is great testament to the work they do in developing young players."
Dummett has made seven first-team appearances for Newcastle.