The 22-year-old has been with the Red Bull senior team since taking over from Daniil Kvyat in 2016, winning his first race with the team at the Spanish Grand Prix following the move.
Since then, Verstappen has taken a further seven race victories with Red Bull and the team has shown promise since switching from Renault to Honda power in 2019.
Verstappen had been one of the big names that could have been on the move with several other top drivers also out of contract after the 2020 season.
Despite potential seats opening up elsewhere, Verstappen said that he was grateful for the faith Red Bull had shown in him.
“I am really happy to have extended my partnership with the Team,” Verstappen said.
“Red Bull believed in me and gave me the opportunity to start in Formula 1 which I have always been very grateful for.
“Over the years I have grown closer and closer with the Team and besides the passion from everyone and the on-track performance it is also really enjoyable to work with such a great group of people.”
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Despite taking just three wins in 2019, Verstappen said that the way the team and Honda worked together was a key reason in his decision.
“Honda coming onboard and the progress we have made over the last 12 months gives me even more motivation and the belief that we can win together.
“I respect the way Red Bull and Honda work together and from all sides everyone is doing what they can to succeed.
“I want to win with Red Bull and our goal is of course to fight for a World Championship together.”
Team principal Christian Horner said that the extension was a chance for Red Bull to capitalise on the 2021 regulation changes.
“It is fantastic news for the Team to have extended our agreement with Max up-to and including the 2023 season.
“With the challenge of the 2021 regulation changes on the horizon continuity in as many areas as possible is key.
“Max has proven what an asset he is to the Team, he truly believes in the partnership we have forged with our engine supplier Honda, and we are delighted to have extended our relationship with him.”