The 19-year-old has enjoyed an impressive campaign and contributed five goals in his first nine Bundesliga appearances.
"The last few weeks have been like a dream," he said to the club's website. "I am extremely thankful to everyone at Schalke for giving me this chance. Now I want to play my part in us being successful again."
His existing deal was due to expire this summer, but Hoppe has now signed a new three-year deal at Schalke, valid for both the Bundesliga and Bundesliga 2.
The forward announced himself to German football when he became the first American to score a Bundesliga hat trick in the 4-0 win against Hoffenheim in January.
Without a goal in his last two games, Hoppe is now facing competition for the place in the starting lineup by the club's legendary striker Klaas-Jan Huntelaar.
However, with just one victory from 19 games and nine points from safety, Schalke face a tough battle to remain in the top flight.
Hoppe has now committed his future to Schalke regardless of their league status and the forward could play a crucial role as the Royal Blues, one of Germany's biggest clubs but in a big financial and sporting crisis, begin their rebuild.
Last month, USMNT head coach Gregg Berhalter told ESPN that he will continue to watch Hoppe ahead of the next round of international games with Europe-based players.