The 22-year-old made 26 Barclays Premier League appearances for Villa last season.
Baker said: "I'm really happy to have signed and for my future to be with Villa. It's an exciting time and, because I've come through the academy as well, it's something that's really special to me, something that hopefully I can use as an inspiration in the future."
Reflecting on a 2012-13 campaign in which Paul Lambert's Villa side finished 15th in the top flight, Baker added: "We were probably one of the youngest squads in the Premier League last season and we felt that we got stronger and stronger as the season went on.
"The fans could see the progress we were making and they got behind us really strongly. That was felt very keenly by the players.
"Hopefully, next season we can keep improving and we can be even better. I think things are in place (so) that we can really do that.
"The manager has been really supportive and that's helped with my performances. The fans have been incredibly supportive of me as well and I feel everything is just coming together brilliantly for me at the moment.
"Next season and in the seasons after that I can hopefully repay everyone for how they've been with me."
Baker, originally from Worcester, was part of the Villa team that won the Premier Academy League in 2007-08.
He has three England Under-21 caps, made his senior Villa debut in January 2011 and to date has played 43 times for the midlands outfit, who he is now committed to until the end of 2015-16.
- Sports & Recreation