The 29-year-old goalkeeper has been rewarded for a fine season in which he was an ever present for the Saints in the Premier League.
Forster kept 14 clean sheets in 38 outings, an outstanding achievement only bettered by Hugo Lloris (15) and Thibaut Courtois (16) last term.
The England international was previously under contract at St Mary's until 2021, having renewed terms last year, but has now been handed an improved five-year deal.
"I'm delighted. I have absolutely loved my time here at Southampton so far and when the opportunity came along to extend it I didn't think twice about it," he told the club's official website.
"I think it's a fantastic club to be at, with a really bright future, and the ambition shown at the club is one where they want to move it forward, so for me it was a no-brainer."
Saints vice-chairman Les Reed added: "We are extremely pleased to have strengthened our commitment with Fraser, who has been an integral part of our team over the past three seasons.
"He has already established himself as one of the leading keepers in the Premier League and, at 29, we believe he still has his best years ahead of him, not just for us but also the national team.
"This is the ideal place for him to continue his progress, under the guidance of our Head of Goalkeeping, Dave Watson, and we are delighted that Fraser continues to see his long-term future at Southampton."