The new deal will keep the 19-year-old at the club until 2013.
“We see Danny as one of the great young players who has emerged from the academy,” said boss Sir Alex Ferguson.
“He will have a terrific career and we are glad that he has placed his trust in us with his future.”
The England Under-21 forward said: “There was never a doubt that this is where I want to be.
“I am enjoying every minute and learning so much from all the great players that are here. I would like to thank Sir Alex, the club and the fans for all their support.”