The deal means the 22-year-old left armer, who graduated from the county’s Academy, will remain at the Brightside Ground until the end of the 2019 season.
Matt said: “I love playing for Gloucestershire and I am delighted to have signed the new contract.
“The club’s going in the right direction and I believe we can compete in all three formats.
“It’s an exciting group to be a part of.”
Having missed most of the 2015 season through injury, Matt enjoyed an outstanding NatWest T20 Blast campaign in 2016 taking 15 wickets at average of 21 to help Gloucestershire finish top of the South Group.
He bowled a maiden to record-breaking West Indian T20 batsman Chris Gayle when Glos met Somerset at the Brightside Ground in June and took a career-best 3-16 in the return match in Taunton.
Matt also played in every one of Gloucestershire’s eight Royal London One-Day Cup games and returned to the County Championship side towards the end of the season.
His form saw him pick up the club’s Young Player of the Year award for 2016 and win selection for this winter’s England Pace Programme.
Matt is one of five young fast bowlers who will combine training with their counties with training at the National Cricket Performance Centre in Loughborough before Christmas. The group will then travel to South Africa for warm-weather altitude training in the New Year.
Matt said: “I was very pleased to be selected on the Pace Programme. It’s going to be a great experience and one I am looking forward to.
“At the start of the year I was just looking to try and play a full season and thankfully I managed to do that. Now it’s about trying to play in all formats and helping us win games.”
Born and brought up in Oxfordshire, Matt – who is the younger brother of Glos all-rounder Jack Taylor – made his debut during the 2011 Brewin Dolphin Cheltenham Cricket Festival while still at school.
He made his first First Class appearance in 2013 and has gone on to take more than 70 wickets across all competitions.
Gloucestershire Cricket head coach Richard Dawson said: “I’m delighted that Matt has decided to extend his contract.
“After having an injury-hit 2015 season Matty has shown his ability with the white ball in one-day and T20 cricket this season, making him a vital player in the squad.
“After all the hard work and performances he has put in he fully deserves his opportunity with the England Pace Programme. It is great for Matt and it is also positive for everyone at the club.”