The deal, which runs through the 2018 season and includes club options for 2019 and 2020, is pending completion of a physical exam. Financial terms weren't immediately available, but Yahoo! Sports reported that Carrasco will receive about $22 million in guaranteed money.
Carrasco's extension comes as the Indians are also locking up reigning American League Cy Young Award winner Corey Kluber on a multiyear deal that will pay him a guaranteed $38.5 million over five years.
Carrasco, a 28-year-old Venezuela native, signed his first professional contract with the Philadelphia Phillies in 2003. The Phillies sent him to Cleveland in July 2009 as part of a six-player trade that brought All-Star Cliff Lee to Philadelphia.
After pitching in the bullpen for much of last season, Carrasco returned to the Cleveland rotation Aug. 10 and posted numbers that have raised expectations for him considerably this season. During a span of 10 starts in August and September, Carrasco went 5-3 with a 1.30 ERA, 78 strikeouts and 11 walks in 69 innings.