The 29-year-old right-back and Scotland international had been frozen out for two years and had not played under boss Paul Lambert until this season.
The former Rangers defender, who joined Tottenham in a £9million deal in January 2008, moved to Villa Park in the summer of 2011 following a loan period at Sunderland.
The deal, reportedly earning Hutton around £40,000 a week, reunited him with his former Rangers manager Alex McLeish.
But he failed to establish himself at Villa Park and made less than 40 appearances during a three-year period which saw him loaned out to Nottingham Forest, Real Mallorca and Bolton Wanderers.
Despite uncertainty over his future, Scotland coach Gordon Strachan continued to include him in his squad and he played a leading role in his nation's revival under the former Celtic manager.
This season he has featured in every league game, helping Villa to second place in the Premier League where they remain unbeaten after four matches.
Hutton has now vowed to grasp the opportunity given him by Lambert after signing the deal which keeps him at the club until June 2017.
"Like everybody else here, I've always trained hard so I've been able to come back strong this season and the benefits of that have been excellent for me," he said.
"I kept my head down, worked hard, came in every day and it's paid off. Now I just want to go on and take this opportunity given me by the manager.
"We've made a really strong start to the season and we want to continue in the same vein. The squad has depth and a great mix of youth and experience which should stand us in good stead over the rest of the season."
Lambert said: "You know exactly what you will get from Alan, he's an excellent professional and he's made an excellent start to the season for us, helping to drive the defense and adding his experience to the mix.
"The way he's played, he's made a big contribution to the great start we've made, as have all of the players because it's very much a squad game and you need that level of focus and commitment from everyone in the group."
