The 22-year-old academy graduate at Villa, made 30 appearances for the first team in what was an eventful and fraught season for the back line.
"I'm really happy to have signed and for my future to be with Villa," said Baker.
"It's an exciting time and, because I've come through the academy as well, it's something that's really special to me, something that hopefully I can use as an inspiration in the future.
"We were probably one of the youngest squads in the Premier League last season and we felt that we got stronger and stronger as the season went on.
"The fans could see the progress we were making and they got behind us really strongly. That was felt very keenly by the players.
"Hopefully, next season we can keep improving and we can be even better. I think things are in place that we can really do that."
Villa manager Paul Lambert says Baker is already an integral part of their squad.
"For any player here at Aston Villa, the goal is always to strive to be the best you can and to keep improving as an individual within the team," Lambert said.
"Nathan has demonstrated courage and real willing and he's contributed to the team and these qualities will underpin his efforts going into the new season."
@bakesy23 congrats geez
— Derrick Williams (@DerickWilliams_) June 6, 2013
In other news, Villa are in the process of snapping up Liam Prynn from Torquay United.
Gulls' head-honcho Andrew Candy told the Herald Express: "As I understand it, the terms have been agreed, and all parties are happy about the situation.
"We are certainly excited - the deal is good news for the club, and for Liam and his family.
"But it's good for our other youth players, who see that things like this can happen to a youngster at Torquay United."
"We are certainly excited - the deal is good news for the club, and for Liam and his family.
"But it's good for our other youth players, who see that things like this can happen to a youngster at Torquay United."
A clue to the signing was on Pryn's twitter page last month:
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