The Switzerland international has been a key part of Eddie Howe's team this season, playing the full 90 minutes in 22 of Howe's first 24 league and cup matches in charge.
The 30-year-old arrived on Tyneside from Spanish side Deportivo La Coruña in 2018 and has made 98 appearances for the Magpies in all competitions, scoring nine goals.
A regular for his country, Schär has also amassed 69 international caps and will be vying for a place in Switzerland's squad at the FIFA World Cup in November.
Schär said: "I'm absolutely delighted. It's what I always wanted - to stay here to play for this unbelievable club.
"Since my first day in Newcastle, I felt so comfortable; it's like a second home and now to stay here for some more years, I'm delighted."
Eddie Howe said: "I've been delighted with Fabian's form. He is the ultimate professional and a hugely important player in our dressing room.
"I'm delighted he has committed himself to the club. He is very driven for future success and I'm pleased he will be a part of our future."