The 23-year-old enjoyed an impressive breakthrough campaign last time out, linking up with Maya Yoshida for large parts and making 23 appearances in all.
Stephens, who has spent the past month on international duty with England Under-21s, is now under contract at St Mary's Stadium until 2022.
Southampton vice chairman Les Reed told the clubs's official website: "Our philosophy at Southampton is to turn potential into excellence, and Jack is somebody who very much embodies this.
"His progression, and the level of his performances, was one of the real highlights of last season, and we have been delighted with his development ever since he joined the club.
"We are extremely pleased to have strengthened our commitment with him, and we believe Jack can continue to improve here and play an important role in our first-team plans moving forward."
Stephens played a part in the Saints' run to the EFL Cup final in 2016-17, where they suffered a 3-2 defeat to Manchester United at Wembley Stadium, and another top-eight finish in the Premier League.
"I am absolutely delighted to extend my stay," he said upon putting pen to paper. "It feels like home to me. I have really enjoyed my time here and am now looking forward to the next five years.
"It's a massive platform for me now because it just shows how much faith the club have put in me."