The 25-year-old Spaniard made his MotoGP debut in 2008 and has spent his entire career in grand prix racing's top flight with Yamaha.
In that time, he has won 20 grands prix, taken the championship in 2010, added 20 pole positions and achieved 49 podium finishes. And Lorenzo believes that a lot more success will follow in the coming seasons.
"I am extremely happy to have signed with Yamaha for two more years," said Lorenzo.
"They've made great efforts to retain me in the factory team so I want to thank all those involved at Yamaha for this. I've been treated like part of the Yamaha family since 2008 and I love working with them.
"It has always been my first option to stay here and so I'm happy that this important negotiation has finished with such a positive outcome.
"Now I can focus on the championship and I'm looking forward to paying back Yamaha's trust in me starting at Silverstone this weekend.
"I look forward to winning many more championships together; my dream to finish my career with Yamaha is now closer to becoming a reality."
The news has major implications for the 2013 rider market, in which Lorenzo had become the key player once Casey Stoner's shock retirement announcement left Honda hunting for a new team leader.
Lorenzo leads the 2012 MotoGP Championship by 20 points from Stoner, having won three of the year's five races so far.