The Croatia international’s previous deal was due to expire in 2018, but he has now agreed a two-year extension to commit his future to Madrid.
Modric joined the Champions League holder from Tottenham in August 2012 and has since developed into a key figure in the Spanish capital.
The 31-year-old has made 180 appearances in all competitions for Madrid so far, winning two Champions League titles, two UEFA Supercups, the FIFA Club World Cup, Copa del Rey and Supercopa de Espana.
He is currently recovering from a knee injury on which he underwent surgery at the start of October, having picked up the knock in the 2-2 Champions League draw with Borussia Dortmund.
Modric started his professional career with Dinamo Zagreb and also wore the jerseys of Zrinjski Mostar and Inter Zapresic on loan before joining Spurs in 2008.