The 39-year-old, who joined the Whites on a free transfer in 2008, will now remain at Craven Cottage until at least 2013.
"I love playing and want to continue for as long as possible as long as the performances are there," he told the club's official website.
"I'm enjoying my football as much as ever and I try to maximise every opportunity I get. The saying I use is 'I'll be a long time retired', so I want to do the best job I can. There's plenty of time to feel tired when you're retired.
"I realised a long time ago what a great life I have and you have to be realistic and realise how privileged we are to play football for a living, at this level in the Premier League. In my opinion it's still the best league in the world."
Schwarzer is currently nursing a neck injury.