The contract will pay the center an average of $5.5 million per season, a source told ESPN.com's Pierre LeBrun.
Grabovski was due to become an unrestricted free agent July 1. He's making $3.1 million this season.
The deal comes shortly after Burke elected not to deal Grabovski at the trade deadline.
"We are extremely pleased to have Mikhail under contract for the next five seasons," Maple Leafs president and general manager Brian Burke said Tuesday in a prepared statement announcing the deal. "His speed and skill are valuable commodities and fit perfectly with our style of play. He leads by example and his work ethic speaks for itself."
Grabovski, 28, has 21 goals and 25 assists and is plus-7 in 60 games for the Maple Leafs this season. In 305 career games with the Leafs and Montreal Canadiens, he has 83 goals and 113 assists for 196 points, along with 188 penalty minutes.
A native of Minsk, Belarus, Grabovski was selected by the Canadiens in the fifth round of the 2004 NHL draft.
The new contract bumped Grabovski $100,000 ahead of Leafs winger Phil Kessel in annual salary.
Information from The Associated Press was used in this report.