According to a statement on Dortmund's official Web site, the new contract extends the midfielder's deal by two years, until 2016.
Everybody knows how comfortable I feel in Dortmund, Gotze said following the announcement, according to the statement. And I want to be a part of this development process.
Gotze, 19, is one of the most talked-about young players in Europe, having made his Bundesliga debut at 17 and won his first cap for Germany at just 18.
It is widely believed that Arsenal tried to sign the midfielder last summer and were planning another bid in the coming close-season.
But with Dortmund currently sitting atop the Bundesliga and with a squad packed of talented young players, it appears Gotze wants to stay and try and achieve even more success with his first professional club.
It would seem that Arsenal boss Arsene Wenger has plenty of other irons in the fire as far as transfer targets for the summer go, however. The Daily Telegraph is reporting that the veteran manager is interested in both Yann M'Vila and Lucas Biglia.
M'Vila is another player whom Arsenal have a purported long-standing interest in. The French holding midfielder has established himself as one of the finest players in his position in Europe and is a fixture in the French national team.
According to the report, M'Vila is valued by his current club Rennes at ÂŁ17âmillion ($27m).
However, with Rennes reportedly having already rejected Arsenal's advances last summer, Wenger is also keeping Anderlecht midfielder Biglia on his radar, according to the Telegraph.
Despite their interest in bolstering their midfield, Arsenal have no intention of losing current star Alex Song and are readying a new contract offer, according to the Daily Mirror.
The report states that the club are ready to make Song one of the highest-paid players at the Emirates with an offer of a five-year contract at ÂŁ75,000 ($120,000) a week.