The 25-year-old joined Worcester from Harlequins in May 2005 and was named Warriors captain this season in the absence of Pat Sanderson and also awarded the players' player of the year award last season.
Horstmann also received a call-up to the England Saxons for the Churchill Cup tour of North America last July.
Worcester Director of Rugby John Brain said: "Over the last two seasons, week in and week out, Kai has consistently performed to a high level in the Premiership.
"He has been a key player for us, captaining the side on many occasions. There was a good deal of interest from other clubs, but I'm absolutely delighted that he's decided to pledge his future to Worcester."
Horstmann, who has started 10 Guinness Premiership matches this season and scored one try, said: "I'm really pleased to have signed and committed my future to Worcester for the next two years.
"I remain indebted to the chance that I was given by this club to show what I was capable of in the Premiership.
"The work ethic and team spirit at this club has taken my game to new levels and I look forward to a successful future with Warriors."