Bain has followed James Forrest in committing his future for a further year until 2023.
The 27-year-old has been out since mid-August since dislocating his thumb and will have to shift an in-form Fraser Forster as well as competing with Craig Gordon.
But he has been handed a confidence boost in the form of the new deal.
"It's fantastic to get it done," the former Dundee player told the club's official website.
"It lets me fully focus on getting fit and getting back in the team.
"It's something that's been in the works for a while, so I'm glad to finally have it finalised.
"It's really enjoyable to be part of a team that's going for trophies and winning the majority of games. You have to thrive off that kind of pressure here. For me to be a part of that has been a dream."
Bain, who has kept 27 clean sheets in 45 appearances, added: "I've developed as a person and as a player here at Celtic. Being around people who want to make you better and train you to a high standard brings the best out in you.
"That, and being around good people every day helps you as a person and a human being as well as becoming a better football player."