Vazquez has featured in 12 of Madrid's 14 games this season, but has started just three
Vazquez has featured in 12 of Madrid's 14 games this season, but has started just three as the Spanish international has developed a reputation as a game changer off the bench under Zinedine Zidane.
"It is an important step in my career, I am happy to be here, it is where I have always wanted to be," he said on Thursday after becoming the latest Real player to extend his contract in recent weeks.
"I will continue working as hard as I can to have more chances to play."
Midfielders Toni Kroos and Luka Modric have also extended their deals with Gareth Bale and Cristiano Ronaldo expected to follow in the coming weeks.
The presence of Bale and Ronaldo has limited Vazquez's chances to start, but he insisted the chance to play alongside them was a major reason for his desire to remain at the Bernabeu.
"It is an honour to be alongside these great players. It was a dream that I had since I was young," he added.
"I want to try and return the confidence the club has shown in me on the pitch and in every training session."