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Cancelo, who moved to City from Juventus in 2019, will stay at the Etihad Stadium until 2027 after penning a long-term extension.
“Manchester City is a fantastic club, so I am incredibly happy to have signed this new agreement,” Cancelo said.
“City players have everything they need to reach their full potential, with amazing facilities, world-class teammates and an incredible manager who pushes us every single day.
“There is nowhere better to play football and it’s a pleasure to work here. I have so much I want to achieve before my career ends, and Manchester City offers me the best chance of fulfilling my ambitions.
“This new contract means I now have complete focus on improving my game and winning more trophies with this team.”
Cancelo, 27, has made 106 appearances since arriving at the club and played a key role in the Premier League title success in 2021, earning a place in the Professional Footballers’ Association Premier League team of the year.
“Joao is the ultimate professional,” City director of football Txiki Begiristain said. “He absolutely loves football and applies himself every single day in a bid to become better.
“He sets really high standards, and any young player should observe the way Joao applies himself if they want a blueprint for success.
“Not only does he have incredible talent, he also displays perfect dedication to this sport. That’s why he can play so many games at such a high level. His consistency during the last two seasons has been amazing. I am really happy he has signed, and I can’t wait to see him develop in the coming years.”