Karlsson moved to the top ranks of NHL defensemen last season after breaking Senators team records for assists (59) and points (78) by a blueliner in a single season.
The 22-year-old former first-round pick tied the team mark for goals by a defenseman with 19.
Senators owner Eugene Melnyk said Karlsson had quickly become "one of the cornerstones of our franchise," adding, "Erik will be a large part of the future success that Senators fans can look forward to."
Karlsson has 37 goals and 149 points over 216 career games in three seasons with the Senators.
Jessica Simpson shares three-way kiss with friends in photo
Senate Democrats to pull all-nighter on climate change