The Ghana international has tied himself to Stamford Bridge until 2013 and follows hot on the heels of Petr Cech, who signed a similar deal on Monday.
Chelsea finalised the deal after touching down in China ahead of their pre-season tour in the Far East.
He said: "I am really pleased to have extended my contract with Chelsea.
"I am very happy here, we have a great team and fantastic fans who have always made me welcome. With the addition of the new manager, I am feeling very positive about the season ahead. "
Chelsea's new boss Luiz Felipe Scolari was only too happy to sign Essien sign his new deal.
"I have not been here long but it is clear to me that Michael Essien is one of the best midfield players in the world," said Scolari.
"I have always admired him and it is good news for me and for Chelsea that he signs for so long."
Essien joined Chelsea in 2005 from French champions Lyon.