The 21-year-old's future had been the subject of speculation following the signing of Netherlands international Robin van Persie from Arsenal last week.
However, Welbeck has committed himself to United for the foreseeable future after 64 first-team appearances and scoring 17 goals to date.
United manager Alex Ferguson told the club's 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 said he is eagerly anticipating achieving further success with the club.
"Playing for United is all I've ever wanted to do - it's the club I've supported all my life," he said.
"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."
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