The 24-year-old has fought off the challenge of Shay Given to establish himself as first choice at Eastlands.
He told the club's official website: "I'm absolutely delighted to have signed a new deal and it is a very exciting time to be a City player.
"I can't think of myself being anywhere other than City and it really feels like home. I feel very privileged to be staying here for another five years.
"I've got a lot of love for this club, the way we're moving forward and for the fans who have been fantastic towards me from day one."
Hart joined City from Shrewsbury for £600,000 in 2006 and has also taken over the position as England first-choice goalkeeper.
He set a new club record for clean sheets last season, and has paid tribute to Given's influence - the Republic of Ireland stopper has now moved to Aston Villa.
Hart added: "When I signed from Shrewsbury it was always my aim to become the number one here and I was prepared to do anything to achieve that, including going out on loan a few times to prove my worth.
"Shay's influence on me has been massive and being able to work alongside him has brought my game on tremendously.
"I've lost a close friend and a fantastic team-mate but I'll keep in touch and talk with him on a regular basis."