The 26-year-old winger has been one of Saints' most impressive performers this season but only had a matter of months remaining on his current deal.
Newcastle were among those linked with a summer move for Puncheon, who has ended such talk by signing a new deal at St Mary's.
"It feels amazing," Puncheon told the club's official website, www.saintsfc.co.uk
"It's obviously been a worry because my contract was up at the end of the season, so it was important for me to get tied down. It's a weight off my mind, so now I can look to the long-term future. The club has a vision, and that's why I've signed and stayed on.
"We got to the Premier League in three years, and now the club has a vision of playing European football - and we want to get there as soon as possible. I believe that can happen and, more importantly, the football club believes that can happen. They believe I can be a part of it and so do I.
"Now I want to finish the season strongly and keep growing as a player - and for us to keep growing as a football club."
Puncheon, who joined from Plymouth just over three years ago, spent several loan spells away from the club after losing his place in the first team and little over a year ago took to Twitter to criticise Southampton executive chairman Nicola Cortese.
The winger threatened to see out the rest of his contract training with the reserves and youth team, but the pair patched up their differences and he has become an integral part of the team, first under Nigel Adkins and now Mauricio Pochettino.
"It's great news that Jason has agreed to sign a new contract with Southampton," the Saints manager said. "He has been very impressive for the club this season and especially so since I arrived, and he is a very important member of our squad."
Source: PA
Source: PA