The 19-year-old attacking midfielder has impressed off the bench for Paul Lambert's side this term after a long-term loan spell at Notts County in League One last season.
A Republic of Ireland under-21 international, Grealish came through Villa's youth system and his new deal is likely to ward off reported interest from the likes of Chelsea and Manchester City.
The Birmingham-born midfielder, who scored five goals in 39 appearances during his time with Notts County, spoke of his pleasure at being able to secure his future.
"I'm delighted and it's a dream come true to commit my future to my boyhood club," he said via Villa's official Twitter account.
"I've had a season ticket at Villa since I was four years old and came to every game, so this is a big thing for me and my family."
Grealish, who can play centrally or on the wing, has made four top-flight appearances for Villa this term, all as a substitute.
His sole start to date came in a League Cup defeat to Leyton Orient in August.
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