The 18-year-old, who has spent his entire career with the club, was promoted to the senior team as the club reached the Premier League last season.
Having managed to convince the midfielder that his future remains with the Saints, manager Nigel Adkins was full of praise for Ward-Prowse.
"As one of the youngsters coming through the system, James has done ever so well since he stepped up to the first team during pre-season," Adkins told the club's official website. "He started the first game of the season and played there on merit [because] he works hard in training.
"He's a great lad in respect of being a role model for the younger players, and he works very hard at his game every single day.
"We're delighted that we've got a hungry and ambitious young man who has now committed his longer-term future to the football club."
Ward-Prowse made his Southampton debut at the age of 16 in a League Cup tie against Crystal Palace last year.