Van der Walt was linked with a move to Gloucester last month but the stand-off insisted he was settled at Edinburgh and had fallen in love with the city.
The new contract – for an unspecified period – was announced 24 hours after he was named in Gregor Townsend’s squad for the Guinness Six Nations.
The South African-born fly-half who turns 27 next month joined Edinburgh from Super Rugby side Lions in November 2017 and has notched 373 points across 66 appearances.
“I have fallen in love with this city,” he said. “My wife and I have made it our home and we’re delighted to have committed to spending our future together in Edinburgh.
“Playing here has definitely tested my game. I’ve really had to develop my skills. I still have a lot more to learn about the game and I’m excited to grow and develop those skills with Edinburgh.
“The club is in a good place and we’re building a really strong side.”
Head coach Richard Cockerill added: “Jaco has been a very consistent performer since joining the club in 2017. We’re delighted he’s staying here in Edinburgh.
“His attacking attributes, kicking ability, bravery in defence and overall knowledge of the game are pivotal to the way we play and he’s been a top-class operator in the No 10 jersey for the last three years.
“We were thrilled to see him make his Scotland debut at the tail end of last year. It meant a great deal to him and we were all really proud of his achievement.
“Jaco is a good man who takes great pride in representing Edinburgh and Scotland.”
Van der Walt and Edinburgh will look to bounce back from last weekend’s narrow defeat by Glasgow Warriors when they take on Zebre in Italy on Saturday.
The capital side are second bottom of Conference B in the Guinness Pro14 with just three wins from nine matches in a season disrupted by the extended autumn international window.
Duncan Hodge, Edinburgh’s assistant coach, knows a win in Parma is imperative before their Scotland players depart for the Six Nations.
“We need all the points that we can get as it’s been such a disjointed season,” said Hodge. “We’ve had a few injuries and seen so little of our Scotland guys. Darcy [Graham] has played four games for us, same with others like Blair, and Duhan. So we just have to go to Zebre and win as we desperately need the points to climb the table.
“This is a game we’ve got to win. Potentially we’re going into the situation that we had in November where we lose a raft of players to international call-ups and we’re going into fixtures against teams that maybe haven’t lost so many. That’s a tough period. But for now we just have eyes on Zebre and looking to put our best foot forward.”