The deal is worth $62 million, according to multiple reports, which makes Kuechly the highest paid middle linebacker in the NFL.
Kuechly has an NFL-best 473 tackles since he entered the league as a first-round draft pick in 2012. He is one of only three players to win NFL Defensive Player of the Year honors within his first two seasons; he earned that accolade in 2013. He also won NFL Defensive Rookie of the Year in 2012.
Kuechly's $12.4 million annual salary tops that of Seattle's Bobby Wagner, who in August received a four-year extension worth $10.75 million a year.
"To me, he deserves to be the highest paid defensive player in the NFL for what he's capable of doing and what he has done," Panthers outside linebacker Thomas Davis said.
Carolina coach Ron Rivera said Kuechly is one of the top two or three linebackers in the NFL.
"The one thing he's done, in all honesty, that has surprised me is his complete command of what we do," he said. "When you find a guy like that, that's pretty special, and you want to keep him around."
Kuechly declined to comment on any impending deal in the team's open locker room session because the deal had not been agreed upon at the time.
Defensive coordinator Sean McDermott didn't want to comment about the extension but said it's no coincidence the Panthers have finished in the top 10 in the league in defense every season since Kuechly arrived.
"He's a servant leader, and that's the greatest compliment I could give someone," McDermott said. "There are a lot of areas where he's helped us. There's no doubt about it. Within that, we've built a culture around here that is all about team, being selfless and putting others before ourselves, and I think Luke personifies that."
Rivera said when he first saw Kuechly play at Boston College he thought he would be a "perfect fit" for what the Panthers do on defense.
"He's got a great first step. He plays downhill. He's got some feel in pass drops and pass coverages. And he reads things and diagnoses things very quickly," Rivera said.
The deal comes three days before the Panthers face the Jacksonville Jaguars on Sunday in the season opener.
The Panthers' long-standing stance is to not discuss contract extensions once the regular season begins.
The 24-year-old Kuechly becomes the fourth Carolina player to sign a big contract extension this offseason. Quarterback Cam Newton signed a five-year, $103.8 million deal, tight end Greg Olsen was granted a three-year, $22.5 million contract, and Davis got $18 million over two years.
Information from ESPN Panthers reporter David Newton and The Associated Press was used in this report.