The France striker, who will spearhead Les Bleus' defence of the FIFA World Cup trophy later this year, had been widely expected to join Madrid on a free transfer.
He had just weeks of his contract remaining, and was hesitating in making his plans known.
That was taken for some as being a pretence, to avoid uncomfortable final weeks in Paris, but Mbappe was stewing over what the right move would be, and he determined it was best to stay put in the Frnech capital. He has signed until 2025, agreeing what is widely assumed to be one of the most lucrative contracts in football history.
He said on Sunday (AEST): "I would like to announce that I have chosen to extend my contract at Paris Saint-Germain, and of course I am delighted.
"I am convinced that here I can continue to grow at a club that provides everything necessary to perform at the highest level. I am also delighted to continue to play in France, the country where I was born, where I have grown up and where I have made my name."
He thanked Nasser Al-Khelaifi, praising the PSG president "for his trust, his understanding and his patience".
Those comments came as LaLiga chief Javier Tebas launched an attack on PSG's business practices under Al-Khelaifi's leadership, with the Spanish league demanding UEFA and both French and European Union officials investigate the club's affairs.
Mbappe will leave such issues for others to debate. His job is scoring goals and few do it better. He scored a hat-trick in PSG's final Ligue 1 game of the season, with the announcement of his new deal having come moments before kick-off.
That was typical of the 23-year-old, who has been voted player of the season in Ligue 1 for three successive seasons.
"I would also like to thank all the fans of Paris Saint-Germain, both in France and around the world, for their support, especially in recent months," Mbappe said. "Together, side by side and ambitious, we will make magic in Paris."
The goal for PSG is the UEFA Champions League title. It was Ligue 1 champion this season, but Madrid knocked it out of the UEFA Champions League at the Round of 16 stage, despite Mbappe scoring in both the home and away legs.
It was a blow that could mean head coach Mauricio Pochettino is soon making way for the next man to accept the challenge of knowing that European supremacy is the be-all and end-all, with Zinedine Zidane reportedly being lined up to replace the former Tottenham Hotspur boss.
Al-Khelaifi has defended PSG from criticism over spending in the past and can be expected to rebuff the latest accusations from Tebas and LaLiga.
"Kylian's commitment to PSG represents an amazing milestone in the history of our club, and a wonderful moment for our fans around the world," Al-Khelaifi said via a club statement.
"Since the day Kylian joined our family, he has achieved greatness beyond his years on every single stage. In committing to PSG, he will be the foundation of our club's future both on and off the field.
"I am incredibly proud and very happy – for Kylian, for our fans, and our entire PSG family worldwide – that we will continue our wonderful journey together. For our fans and our club, the greatest chapters of our future lie ahead."