Walcott has now made more than 100 appearances and scored 14 goals for Arsenal, who did not reveal the length of his new deal.
The youngster is in no doubt the Emirates Stadium is the best place for his career to develop.
"I am so happy here and just want to say thanks to everyone who has helped me get to this point in my career," Walcott said in a statement on the club's official website.
"Together with the belief of my team-mates, the boss and everyone on the staff, everyone has got behind me here at Arsenal which is brilliant."
Walcott added: "It is fantastic to work with the best manager in the world and play at Emirates Stadium, which is an unbelievable place to play in.
"I just want to continue playing my football at this club and look forward to many successful seasons ahead."
Gunners boss Arsene Wenger believes Walcott is integral to the club's future.
"Theo is an intelligent player with amazing ability and speed, and has developed extremely well this season," he said.
"At still only 20 years of age, Theo has huge potential for the forthcoming years and we are all looking forward to see him grow even more in an Arsenal shirt."
Arsenal crashed out of the Champions League with a home defeat to Manchester United in midweek, but will look to make up ground on third-placed Chelsea when they meet in the Premier League at Emirates Stadium on Sunday.
Arsenal v Chelsea 1st Goalscorer: Walcott, T. 12/1