Cole's previous deal was set to expire at the end of the season and at one stage he was expected to leave Stamford Bridge.
Cole said on the club's official website, www.chelseafc.com: "I am pleased I will be starting my eighth season at Chelsea. I wanted to stay at Chelsea because we are always fighting and challenging for trophies. That desire and the will to want to win things have not gone."
News of the deal being agreed emerged on Saturday, and confirmation that Cole has now signed up provides a boost on the eve of the Capital One Cup semi-final second leg at Swansea, where Chelsea must overturn a two-goal first-leg deficit.
Cole has played 293 games for Chelsea, 11 of them as a substitute, and has scored seven goals. The 99-cap international has won one Premier League title, four FA Cups, one League Cup and was also part of the team that defeated Bayern Munich in last year's Champions League final.
Twice a winner of the Chelsea Players' Player of the Year award, Cole is still considered one of the world's best left-backs and his retention could go some way to appeasing fans upset at the likely departure of midfielder Frank Lampard come the end of the season.
Cole added: "I have great memories here and I enjoy coming to training every day. The staff are amazing and I enjoy training with the lads.
"I have been able to fulfil nearly all my ambitions at Chelsea. I have won the Champions League, the League, I have won FA Cups here but of course you don't want to stop winning trophies and being at a big club, you are always fighting to win a trophy.
"Being here for seven years and being at Arsenal before that playing for trophies, you never lose that hunger. I wanted to stay at Chelsea because we are always fighting and challenging for trophies. That desire and the will to want to win things have not gone."