Switzerland international Schär, who turned 32 last month, has made 169 appearances for the club since arriving from Deportivo La Coruña in July 2018.
The stylish centre-back has scored 11 times in black and white so far, with many of those strikes spectacular - including the memorable final goal in the Magpies' 4-1 Champions League victory over Paris Saint-Germain in October.
"I've said it a lot of times, but I feel really at home here," said Schär, who has played 78 times for his country and is expected to be part of the Rossocrociati squad for next summer's Euro 2024 competition.
"I feel so comfortable living in Newcastle; I love the city and I love playing for the club and the incredible fans. I can't say enough how much I love them, and how much their support means to me.
"Playing for this team where I feel so comfortable with all my team-mates and with the coaching staff feels really like a family for me, so I'm really grateful to stay here a bit longer and hopefully to have some more exciting times."
The former Wil, Basel and Hoffenheim man was named as the North East Football Writers' Player of the Year in 2019 after a strong start to life on Tyneside under Rafa Benítez.
But since Eddie Howe was appointed as United's Head Coach in November 2021, Schär has become even more important for Newcastle, helping the Magpies to qualify for Europe and reach last season's Carabao Cup final.
Eddie Howe said: "Fabian has been excellent for us. Since I've come to the football club, he's been a model of consistency and a big part of our success.
"He's defended very well but he's hugely talented with the ball as well, so we're delighted that he's extended his time here."