The 21-year-old forward, who joined the club's academy at U9 level, has been rewarded after a successful loan spell at Sky Bet Championship side Hull last season.
"I'm delighted to sign the new deal," Wilson told Liverpool's official website.
When it got offered to me, I was desperate to get everything sorted so I could sign it fairly early on in pre-season because I want to focus on playing football.
"So, now this is sorted, I feel I can do that and push on and try and impress."
Wilson scored seven times in 13 matches while on loan at the KCOM Stadium and around a dozen clubs, including Celtic, have reportedly made enquiries about the Wales international ahead of the new campaign.
However, Wilson is hoping to avoid going out on loan as he looks to secure first-team football under Jurgen Klopp.
I think my short-term focus is to keep trying to impress the manager day in, day out in training and, the minutes I get in pre-season, try and impress," said Wilson, who scored twice in the 7-0 pre-season win over Chester on Saturday.
"[I want to] keep trying to score goals, [get] assists, help the team out and then I'm not looking too far beyond that.
"I feel if I do well enough here, everything else will take care of itself."