Horstmann, who has been named Warriors skipper this season in the absence of Pat Sanderson, was awarded the Player's Player-of-the-Year at the club's annual awards last season.
And his performances also thrust him into the international arena when he received a call-up to the England Saxons for the Churchill Cup tour of North America last July.
John Brain, Worcester Warriors Director of Rugby, 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, added: "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."