Welbeck, 21, has been rewarded for his impressive performances over the last 18 months which have made him a key figure for both United and England.
He made his United debut in 2008 before finally establishing himself in manager Alex Ferguson's first-team last season, while also earning a starting place for England at Euro 2012.
Despite United's swoop for Dutch forward Robin van Persie last week and the presence of other top strikers like Wayne Rooney and Javier Hernandez, Ferguson insists Welbeck will continue to play a major role over the coming seasons.
"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," Ferguson told United's website.
"He has become an important player at international level as well, as the maturity of his performances at the European Championship showed.
"This year is another important one for him. He has a bright future ahead of him."
Manchester-born Welbeck said that the opportunity to continue playing for his boyhood club is a dream come true.
"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."