The 19-year-old has signed a new two-and-a-half-year contract with the south-coast club having made his debut against Crystal Palace in the Premier League last month.
McCarthy - who has captained the club's Under-21 squad - is the latest talent off Southampton's production line and joins fellow youth products James Ward-Prowse and Harrison Reed in the first team setup.
"It's great to put pen to paper. Obviously at the start of the year I knew I was out of contract at the end of the season," he told the club's official website.
"I was pleased with my progress at the time and I think I've done well this season so far. I've been with the club since I was seven years old, so it really shows that I'm at the right place.
"I'm getting the right opportunities as has been seen this season and I couldn't be happier. When I made my debut, it was a really special moment and I'll never forget it. I just want to kick on now."
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