The 28-year-old's current contract was due to expire in June 2007.
Horsman has made 26 appearances for Worcester since joining in July 2004 and won three caps for Wales in last autumn's internationals.
Horsman said: "I am glad to be committing myself to a club that has the potential to compete on a European stage. I have the chance to work with coaches of John Brain and Anthony Eddy's calibre over the next four years, which I consider to be my best years.
"It is too good an opportunity to turn down."
Director of rugby John Brain told the club's website, www.wrfc.co.uk: "Chris is an important part of our plans and I'm delighted we've quickly put an end to any speculation there may have been over his future.
"This is very positive news for everyone connected with the club."
Bristol fly-half Danny Gray has also agreed a new one-year contract.
Gray has found first-team opportunities at the Memorial Ground limited this season, but boss Richard Hill rates the 22-year-old highly.
"If players improve, I will continue to invest in them and if Danny continues to improve, you never know where he will go," he said.
"We are looking at Jason Strange and Tommy Hayes as the first-choice fly-halves, but he is certainly a valuable member of the squad.
"I would have no worries about playing Danny in the Guinness Premiership."
Bristol have already agreed contract extensions with Strange, Sam Cox and Greg Nicholls and hope to conclude negotiations with six others by the end of January.