The versatile 21-year-old, who can play in central midfield or at full-back, has committed himself to Villa until the summer of 2014.
Herd, who made his Premier League debut against Manchester United earlier this season, becomes the latest Villa academy product to put pen to paper on a new deal after Marc Albrighton, Barry Bannan, Ciaran Clark, Jonathan Hogg and Gary Gardner.
Perth-born Herd, who arrived at Villa as a 15-year-old, was included in Australia's squad for the current Asian Cup, although he did not make the final line-up.
The youngster, who scored a hat-trick for the reserves in a 10-1 win over Arsenal on Monday, said: "When I got offered the contract, it wasn't a difficult decision to make at all.
"A few of the other boys have done really well and have all signed contracts so it is nice to follow in their footsteps.
"When you get that taste (of the first team) you want more and it spurs you on."
Herd has spent time on loan at Wycombe, Port Vale and Lincoln to help with his development.
His first senior involvement for Villa was as a substitute in the UEFA Cup tie against Hamburg in December 2008.
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