Sources told ESPN.com's Pierre LeBrun that Karlsson's deal is worth an average of $6.5 million per year.
The deal was announced by the team on Tuesday, one day before Karlsson will find out if he was picked as the NHL's top defenseman for the recently completed season.
"I'm very happy," Karlsson said from Las Vegas, the site of Wednesday's NHL awards ceremony. "All the discussions we've had have been good discussions. It's been fair, no backstabbing or anything like that. We have a lot of respect for Ottawa's organization.
"(General manager Bryan Murray) has done a terrific job with Ottawa as long as he's been here. I have full confidence in him and in the organization, as well."
The 22-year-old Karlsson, who could have become a restricted free agent this summer, led NHL defenseman last season with 78 points.
"Erik is the type of player and person that embodies an Ottawa Senator," Senators owner Eugene Melnyk said in a statement. "We feel strongly that this long-term commitment will be great for both sides.
"As one of the cornerstones of our franchise, Erik will be a large part of the future success that Senators fans can look forward to."
Karlsson had 19 goals and 59 assists and was an NHL All-Star for the second straight season. He was chosen by the Senators with the No. 15 pick in the 2008 draft.
"It's going to be higher expectations from everyone," Karlsson said. "That's the way it is. It's something that comes with this work, something that I know about. It's not something that's kind of snuck up on me. I know how it works. I'm going to try to play my best every night.
"It's all I can do. I'm not happy with where I am today. I'm still trying to be a better hockey player. I'm becoming a better person, as well. I know Ottawa has all the capacity to help me be that guy. It's going to be an exciting thing and something to look forward to."