The 27-year-old had a year left on his previous deal, but the new deal will keep him at Wolfsburg until the summer of 2014.
“I am very happy to remain at VfL Wolfsburg,” he told the club’s official website.
“I owe much to the club and I also owe much to manager Felix Magath. I must also say that my family enjoys being around here.
“I want to be successful again with VfL Wolfsburg in the league and cup competitions in the next few years. I believe we are able to achieve much.”
Schafer has developed into a key player for Wolfsburg since joining the club from Munich 1860 in 2007.