The center was in the final year of 10-year, $67 million contract. He had been negotiating a new deal without an agent, saying that he has a "good enough relationship with the organization where we can be honest and talk."
Backstrom, 32, now has the second-highest average annual value on the team behind Alex Ovechkin. Ovechkin's contract expires after this season.
He is only one of two Capitals players to have 900 points (908), along with Ovechkin (1,255).
Backstrom has been a model of consistency since starting with Washington as a 20-year-old in 2007-08. He is the Capitals' all-time assists leader with 668, recording more than 50 assists in six straight seasons.
With Ovechkin, he suffered through crushing playoff disappointments before the Capitals broke through to win the Stanley Cup in 2017-18. Backstrom had 23 points in 20 playoff games during that Stanley Cup run.
This season, Backstrom has nine goals and 26 assists. He has 240 goals in his career.