The talented midfielder is now contracted to the club until the summer of 2019.
Having joined Dale from Manchester United in June last year, Rathbone made 33 appearances for Keith Hill’s side during the 2016/17 campaign, and has featured in all three of Rochdale’s games so far this term.
After putting pen to paper, Rathbone told the club’s website : “Coming to this club has been a revelation for me.
“Being here has improved me a lot as a player and as a person, and it has helped me to really find out what’s required to be a professional footballer. I’m really enjoying my time here.
“I’m very pleased to have signed an extension and I’m pleased to have got it all sorted before tomorrow’s game.”
Manager Keith Hill added: “Ollie is still relatively young and I’m encouraged by his attitude, application, enthusiasm and his energy.
“When we recruited him, he could have stayed at Manchester United for another year. He was on relatively good money in comparison to what we were prepared to pay him, but he took the sacrifice to be given the opportunity.
“He’s taken that opportunity and I, and the club, believe that we should reward him, and that’s what we’re doing. We look after our players, especially when they do the business. And I believe there’s still more to come from Ollie. After a good start to his footballing career last season, I’m encouraged that there’s still improvement in him and that he’ll be better this season and the season after that.”