The new contract is reported to be worth $49 million.
Phaneuf, 28, is in his fifth season with Toronto after starting his NHL career with five seasons in Calgary. He is the Maple Leafs' team captain and could have become an unrestricted free agent after this season.
"Dion is our team leader and has been a pillar in our building process," Maple Leafs General Manager David Nonis said in a statement. "He has proven to be a very durable and reliable defenseman in all facets of the game. He plays big minutes in every situation for us and we're pleased to have him under contract for the next seven seasons."
Phaneuf has appeared in 639 NHL games, scoring 110 goals and assisting on 245 others. He has four goals and 11 assists in 39 games this season.
"This is a very proud day for me and my family," Phaneuf said. "I'm very honored to be the captain of this historic franchise and to maintain the opportunity to play and represent the Toronto Maple Leafs for many years to come. We have passionate fans and a dedicated ownership group. I have great teammates and look forward to growing with them and achieving our goal of winning."
Notable deaths of 2014 [PHOTOS]