McArthur joined Palace from Wigan Athletic in September 2014 on a three-year deal and the Scotland international has been rewared with an improved deal following an outstanding debut season.
Speaking to the club’s website, McArthur said: “I’m delighted. I had a fantastic time last year.
“I think the club’s going in a great direction, everyone’s positive around the place and I’m really looking forward to the coming years.”
“It was an easy decision. There was nothing really to consider.
“I think there was a bit of general interest [in me], but Palace is where I want to be, I’m happy and that’s the main thing in football.
“When you’re happy, you need to try to keep that and keep going with it. I think the club have got the potential to go places. We finished tenth last year and we’ll be looking to progress again. I’m really delighted.”
Palace boss Alan Pardew added: “James is a very important player for this football club, he was key for me last season and he has impressed with every aspect of his play. Because of the quality that he brings and the attitude that he has, it was important to offer him this new deal.
“I’ve been a fan of his for a long time and was impressed with his performances when he was playing for Wigan,” he added.”