The 21-year-old has committed to the club, where he graduated through the youth ranks, until 2016.
The new deal puts an end to any speculation surrounding the England international's future at Old Trafford following the summer arrival of Robin Van Persie, last season's top scorer and the reigning double-Player of the Year.
United manager Alex Ferguson told the club's official website: "Danny has been with the club since he was eight years old and has made fantastic progress in the last couple of years – first out on loan and last year as a regular in the first team.
"He has become an important player at international level as well, as the maturity of his performances at the European Championships showed. This year is another important one for him. He has a bright future ahead of him."
Welbeck added: "Playing for United is all I’ve ever wanted to do – it’s the club I’ve supported all my life.
"I can’t wait for the challenge of the new season to play my part in helping the team compete for trophies. I’m learning all the time from the best manager in the game and I’m keen for that to continue alongside the world class players in the squad."
Welbeck has scored 17 goals in 64 appearances for United since making his debut in 2008. Last season was his most successful to date, as he scored 12 times for his club and also netted his first two international goals, one of which was the winner in a 3-2 victory over Sweden at Euro 2012.
- Robin Van Persie