The England fly-half has made 152 appearances for Sarries since emerging through the ranks in 2008, winning three Aviva Premiership titles during that time.
Farrell has previously described Allianz Park as his "home", having been a part of the setup since the age of 14, and he intends to win plenty more major honours during the next five years there.
"We've known each other for such a long time now. We're all best mates," he told the club's official website. "To come through with them and be able to spend day in and day out with them, to share what we are doing, is the most important thing. This teams got a long way to go still. To see how far we can take it is exciting."
Saracens director of rugby Mark McCall added: "Owen has developed into one of the leading players in world rugby. He is one of our own, so for him to commit his long-term future to the club is huge news - we're delighted that he'll be extending his stay."
Farrell has 52 England caps and has also featured four times for the British and Irish Lions.