Germany Under-21 international Rudy, who moved to the Rhein-Neckar Arena in 2010 from Stuttgart, will now be under contract with Hoffenheim until June 2017, after impressing during his four seasons with the club.
The 23-year-old has featured 94 times in the Bundesliga for Hoffenheim as well as making seven appearances for the club in the DFB-Pokal.
He told the club's official website: "I've always said that I would love to stay at Hoffenheim.
"I like the course taken by the club, it's fun with this team."
Alexander Rosen, Hoffenheim sporting director, added: "Sebastian is an extraordinarily gifted player whose skills are still not fully exploited."
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