The 22-year-old was named player of the season at Eastlands and the club has been keen to secure his long-term future.
Ireland told the club’s official website: “It was something that I’ve been worrying about for a few months but now it’s done I can enjoy the summer.
“I never had any doubts about staying. Regardless, I was going to be here, and hopefully for the remainder of my career. I don’t see why not. I really want to become a hero here, to hopefully achieve things.
“I’m settled here – I love the club, I love the fans, and I don’t see what’s going to make me leave this club.
“These are very exciting times. It’s going to be interesting just to see what the line-up will be at the start of next season and how far we can push on. Hopefully we can compete for the title and get back into Europe.”
City boss Mark Hughes said: “Stephen’s new contract is great news for everyone concerned. He was outstanding all season and is now one of the best midfielders in the Premier League.
“He thoroughly deserves all the praise that has gone his way after the hard work that he undertook last summer, and I know that he is already aiming to do even better for us next season and beyond.”