The 28-year-old has extended his stay at the Etihad Stadium until 2018.
Dzeko, who joined the club from Wolfsburg for £27m in 2011, scored 16 goals last season to help City regain the Premier League title.
"I'm really happy here at City, it's a second home to me, so it was an easy decision to stay for the long term," he told the club's official website.
"I knew from the beginning when I started here that I wanted to stay for a long time - I can't see any place better than here.
"I'm settled perfectly to life here, I know my teammates, the club, the team, very well and I feel like I can improve even more."
Dzeko has scored a total of 66 goals in 155 games for City during his time with the Blues.