The deal adds three years and $35 million to his existing deal, which pays him $5.5 million this year. That means the overall contract is worth $40.5 million over the next four years.
General manager Kevin Towers said Hill has become "one of the premier second basemen in the game, not only in the National League but in all of baseball."
The 30-year-old infielder - Toronto's first-round draft pick and the 13th selection overall out of LSU a decade ago - hit a career-high .302 with 26 home runs, 44 doubles and 85 RBIs last season, earning him a Silver Slugger award, the first for a Diamondbacks infielder. He came to Arizona as part of a trade with Toronto in August 2011 and was a big part of the team's stretch run to the NL West title that year.
Hill said in a conference call on Friday that he understands the importance of free agency in setting market value for players, but for him, signing a long-term deal to stay in Arizona "was a very easy decision."
"I love playing baseball. I just love being out here," he said. "Our family and I are very, very happy here. I wouldn't want to be anywhere else."
The deal follows an agreement last week between Arizona and newly acquired third baseman Martin Prado on a four-year, $40 million contract. Towers said he saw no other contract extensions on the near horizon.
Some of the flexibility for the contracts came with the departure via trade of Justin Upton, who had three years and $38.5 million left on his deal.
Hill hit for the cycle twice in an 11-day span last season, against Seattle on June 18 and against Milwaukee on June 29. The only other player to hit for the cycle two times in a season during the modern era of baseball was Babe Herman of Brooklyn in 1931.
Hill was voted the 2012 team's most valuable player by the local chapter of the Baseball Writers of America.
Among second basemen since 2009, Hill ranks second in extra-base hits, third in total bases, home runs and RBIs and fourth in doubles. Only Dan Uggla (118) and Robinson Cano (111) have more home runs than Hill's 96 in that span.
He is a career .272 hitter with 124 home runs, 244 doubles and 510 RBIs in eight major league seasons.
Towers also lauded Hill's character and his off-field contributions to the community.
"There's no better representative than somebody like Aaron Hill," Towers said.
Toronto traded Hill and shortstop John McDonald to Arizona on Aug. 23, 2011, in exchange for second baseman Kelly Johnson. Hill signed a two-year, $11 million contract after the 2011 season.
He said he doesn't really know why his game rose to a new level after the trade.
"You hear a lot that a change of scenery can help a person," he said, "and speaking personally, that's what happened."
Going from Toronto to an Arizona team that was chasing the NL West crown had a rejuvenating effect, he believes.
"Maybe it was a newfound excitement, being a part of a race," he said, "because that's why you play the game."
Hill said he likes the new players coming in, a group that not only includes Prado but outfielder Cody Ross. He said they add to Towers' goal of being a "hard-nosed" team.
"It's a great feel already with the guys coming in," he said. "I think team chemistry goes very far in this game, and I'm very excited about the new guys coming to the team."
Pitchers and catchers report to the Diamondbacks spring training facility in Scottsdale on Monday, with the first workout Tuesday. All players report on Thursday.
Hill will be in Parker, Ariz., for a groundbreaking for Aaron Hill Field on March 25, the 33rd "Diamonds Back Field" built by the club through its sponsor APS and various players.