The 24-year-old, a surprise omission from Brazil's squad for this summer's World Cup, had reportedly attracted interest from several top clubs.
"I always dreamed of playing for a big club, and it means a lot to me to give my long-term commitment to this club," Pedro said in a statement.
‘I have a very good relationship with everyone here at the club, and I have felt at home here in London from the moment that I joined."
Signed from Brighton last year, Pedro scored 20 goals in all competitions.
Chelsea open their Premier League campaign at Fulham on Monday.