The contract is worth $64 million and includes financial support for Bautista's charitable activities in Toronto and the Dominican Republic.
"I feel very happy because I have enjoyed playing in Toronto and now I'll stay here at least five more years," Bautista said Thursday.
By agreeing to the extension, the Blue Jays avoided salary arbitration with the 2010 major league home run leader.
"If we can't bet on him, we can't bet on anybody. That's what it really came down to," general manager Alex Anthopoulos said at a news conference to announce the deal Thursday.
Anthopoulos said giving Bautista a lengthy contract "is part of the risk" of signing a player after one exceptional season.
"The easy thing for me and the organization to do was to not do anything and say, 'Well, it was one year,'" Anthopoulos said. "The conservative approach was to let him play it out. If he has a great season maybe he prices himself out of what we thought made sense. If he doesn't have a good season, well, it would have been a good move not to sign him.
"But that's not what this organization believes in," he added. "We wholeheartedly believe in Jose Bautista as a person more than anything else. The ability speaks for itself. We've analyzed it up and down and the longer I've been in the game -- it hasn't been that long -- but over time and the more I'm around players and observe things, you're betting on people more and more."
Bautista, 30, requested a salary of $10.5 million for 2011, while the club offered $7.6 million. He would be eligible for free agency after next season if a multiyear deal isn't reached.
"Nothing has changed. Now I will keep working hard and playing ball the way I know how to do it," Bautista said.
Bautista has a .244 career batting average with five teams in his seven-year MLB career but is coming off a dream season in which he led the majors with 54 homers and was selected to his first All-Star team.
In his third year with Blue Jays, Bautista hit .260 with 124 RBIs and 109 runs scored.
He was fourth in AL MVP voting and was the recipient of the Hank Aaron Award, awarded to the most complete batter in each league.
"Speaking for everyone in uniform, I think we're all elated that he's going to be here for quite a while," new Blue Jays manager John Farrell said.
"I think the message that is sent to every other player in the clubhouse is, you play here, you perform well, you're going to be retained. That goes without saying, but I think the fact that there's no distractions for Jose going forward, any kind of continuity or stability that you create for a player, they're going to be more comfortable and likely to be as productive as their talents allow them to be," Farrell said.
Enrique Rojas is a reporter and columnist for ESPNdeportes.com and ESPN.com. Information from The Associated Press contributed to this report.