A Wales Under-20 Grand Slam winner, Jones made his regional debut against Cardiff Blues in November 2014 and has since gone on to make 83 appearances and rack up 423 points.
He wore the No 10 jersey in the Scarlets side that saw off Bath and Toulon in the European Champions Cup last season and finished the campaign as one of the top kickers in the Guinness PRO14.
The 23-year-old has made 15 starts at fly-half this season, delivering a string of assured displays in the pivotal position.
“This is my home region, I came through the academy at the Scarlets, and I am delighted to be continuing my rugby here,” said Jones.
“There is strong competition for the 10 jersey and I have been happy with the amount of game time I have had.
“We haven’t had the season we wanted, but we still have something to play for in the coming weeks.
“The boys are ambitious. There is a good buzz here. We have enjoyed plenty of success in recent seasons and hopefully we can achieve more in the coming years under a new coaching team.”
Scarlets general manager of rugby Jon Daniels said: “Dan is another local player who has come through our academy ranks to be a regular for the Scarlets.
“It is easy to forget how young Dan is. At 23 he already has more than 80 appearances for the Scarlets and has played in some huge European matches.
“There is great competition for the No 10 jersey at the moment. With Rhys Patchell and Angus O’Brien due to return from injury next season, we have three talented Welsh fly-halves on our books.”
Among those to have signed new Scarlets deals are Wales Grand Slam winners Rob Evans, Ken Owens and Jonathan Davies, full-back Johnny McNicholl, prop Werner Kruger, and flanker Dan Davis.
The Scarlets have also secured the services of Hurricanes second row Sam Lousi.
