The midfielder joined the Bavarian side from Barcelona in 2013, where he teamed up with coach Pep Guardiola at the Allianz Arena.
While the 24-year-old has suffered with injury problems throughout his time in Germany, he has impressed when fit and has been rewarded with a new deal.
The Spain international was originally tied to Bayern until 2017, but has added another two years onto his deal. The club's CEO, Karl-Heinz Rummenigge, was delighted by the news.
"We are happy that Thiago has chosen to stay long term at Bayern," he said. "He is young and an important player for the future of the club."
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