Davies, who joined Bolton from Wolves in January 2009, has emerged as a key player under manager Owen Coyle this season, making 25 appearances and scoring once. And the 22-year-old is delighted to have been rewarded with a new four-and-a-half-year deal.
"I'm really pleased to have signed a new contract," said Davies.
"The football club has been good to me since I moved here two years ago and I'm really settled in the area. The manager believes in me and I feel like I'm part of his plans."
Coyle, whose side are eighth in the table and pushing for a Europa League spot, told www.bwfc.co.uk: "Mark was already under contract but what this shows is that we are trying to build a football club for years to come.
"The nucleus is centred around young, exciting players and Mark certainly comes into that category.
"He is enjoying an extended run in the team at the moment and he is showing his qualities. To have a player of his ilk commit his long-term future to the football club is a tremendous boost."