The 26-year-old had a year remaining on his previous deal, but has now agreed a deal to keep him at the Liberty Stadium until the summer of 2019.
Taylor made 36 appearances in all competitions as the Swans finished eighth in the Barclays Premier League.
Taylor was signed from Conference side Wrexham in 2010 and has made more than 130 appearances for the club as well as being capped 21 times by Wales.
He will now link up with the Wales squad as Chris Coleman’s side prepare for a crucial Euro 2016 qualifier against Belgium in Cardiff on June 12.
“It was an easy decision,” he told Swansea’s official website.
“I’m glad we’ve managed to get it done early. Both myself and the club wanted it to happen, I’m really happy and focused on Swansea.
“We’ve been so successful in recent years and the club is really moving forward now.
“Last season was our best yet. We have a young, hungry manager and everything is progressing here both on and off the field.
“The training ground is being developed at the moment and each year we seem to be making big strides.
“But we know that next season this group of players is able to make another big mark on the Premier League and we’re hoping we can do great things again.
“I think we’ll strengthen again this summer, so as a player there is no other place you would want to be right now.”