Baker, 29, had one year remaining on his current deal and would have been eligible for unrestricted free agency next spring without the extension. The extension is worth $8.5 million and makes Baker one of the NFL's highest paid punters.
"He's a very steady player and he's our kind of person,"
general manager Marty Hurney said.
The former Iowa star was released six times before landing full-time employment in the league. In his two seasons with the Panthers, who acquired him from Denver in a 2005 trade that sent three-time Pro Bowl punter Todd Sauerbrun to the Broncos, Baker has averaged 44.7 yards gross and 39.2 yards net.
In 87 games with San Francisco (2001-02), Philadelphia (2002), Kansas City (2003-04), Indianapolis (2004), Denver (2004-05) and Carolina (2005-06), he has a gross average of 41.8 yards and a 35.7-yard net average. Baker has also averaged 62.2 yards on 170 kickoffs.
Len Pasquarelli is a senior writer for ESPN.com. The Associated Press contributed to this report.