Terms were not disclosed, but a source told ESPN's Adam Schefter that Sanders' contract is worth $33 million, with $27 million fully guaranteed.
John Elway, the Broncos' executive vice president of football operations/general manager, announced the deal through his Twitter account.
The contract extension is through the 2019 season.
In an Instagram post, Sanders said he was "honored" to announce that he would be remaining with the Broncos past this season.
"Emmanuel has proven himself as a great player and one of the most productive receivers in this league," Elway said in a statement. "He plays with intensity, and we love the way he competes. We're thrilled Emmanuel is going to be a Bronco for many more years to come."
Sanders, 29, is in the third year of a three-year, $15 million contract he signed in 2014.
He has had back-to-back 1,000-yard seasons with the Broncos and was named to his only career Pro Bowl in 2014, when he finished with 101 catches for 1,404 yards. He had 76 receptions for 1,135 yards last season.
ESPN's Jeff Legwold contributed to this report.