The 31-year-old right-hander will receive $14.5 million in each of the 2013 and 2014 seasons, with incentives that could enable him to exercise a $15 million players' option in 2015.
Peavy will get a $4 million buyout payment due under terms of his previous contract, spread out between 2016-19, White Sox Senior Vice President/General Manager Rick Hahn said.
"Early on in this process, Jake expressed his strong desire to remain with the White Sox, and we're happy to reach a deal that keeps him at the top end of our rotation and his influence in our clubhouse for at least the next two years," Hahn said.
Peavy went 11-12 with a 3.37 ERA and 194 strikeouts in 32 starts last season, ranking among the American League leaders in quality starts, complete games and innings pitched (219).
He boasts an 120-93 record with a 3.46 ERA and 1,748 strikeouts over 283 games in 11 seasons with the San Diego Padres and White Sox.
NBC reportedly holds celebs hostage to Jimmy Fallon's show
Ray Liotta sues skin care company over use of likeness