The 25-year-old left-hander has been at Hove since the age of nine and made his first-class debut in 2010.
Wells scored 859 runs at an average of 42.95 in the County Championship in 2016, hitting four centuries.
"The club is in a period of transition and I'm really excited to be a part of that process," he said.
Wells will spend the winter playing grade cricket in Australia, for Sydney-based University of New South Wales.
Sussex batsman Luke Wells has signed a new two-year contract, which will keep him at the club until the end of the 2018 campaign.