The 30-year-old, who featured for Bosnia-Herzegovina at the World Cup, still had two years left on his existing deal, but has now agreed to stay with the club until June 2017.
Ibisevic's new contract appears to have curtailed West Ham's hopes of signing the forward.
Sam Allardyce had been linked with a £7 million deal for the former Hoffenheim man before he committed to stay at the Mercedes-Benz Arena.
"I love playing for VfB, so I am delighted [to sign a new deal]," Ibisevic told Stuttgart's official website.
"We can develop something here again, and I would like to contribute with my services. We can experience all together better times with the club."
Ibisevic has scored 33 goals in 72 Bundesliga matches for Stuttgart since joining from Hoffenheim in January 2012.
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