The 18-year-old midfield playmaker has been linked with potential moves to some of the biggest clubs in the world - including Manchester United and Real Madrid - and has been likened by some to Lionel Messi.
But his new contract will keep him at Tannadice until May 31, 2017.
Gauld made his debut as a 16-year-old and has played 30 times for the Terrors, scoring seven goals.
Manager Jackie McNamara said: "Ryan is showing his commitment to the Club by signing this contract.
"We are trying to build something special here and securing Ryan on a longer deal signals our desire to achieve this.
"He is a fantastic talent who appreciates that Dundee United is the best place for him to develop at this time.
"Dundee United fans will quite rightly be delighted at this news and how the club is moving forward just now."
Gauld signed an extended contract last month but turning 18 on Monday has allowed him to sign on for a further year.