Ulrich's deal at the Cannstatter Wasen, previously set to run until 2027, has now been extended to 2028 as part of the arrangement.
The midfielder spent last season on loan at second-division side Magdeburg, where he made a strong impression with three goals in 33 appearances, following an earlier loan spell in the third tier with SSV Ulm the previous campaign.
Several other clubs were reportedly interested in taking Ulrich this summer, with Sky Germany reporting an agreement between VfB Stuttgart and SC Paderborn was reached on Friday evening, pending a medical.
Paderborn's sporting director Sebastian Lange was enthusiastic about the signing.
"Laurin is a technically extremely accomplished player who has very high game intelligence. Despite his young age, he has already gathered plenty of experience in the second and third divisions. Last season in Magdeburg he also took on a defining role in midfield," Lange said.
Ulrich came through Stuttgart's academy after joining from local side TSG Nattheim in 2016 and made his Bundesliga debut for the club at the end of 2022.
He was named a recipient of the Fritz Walter Medal in silver in 2022 and played a significant part in Stuttgart's under-21 side winning the Regionalliga title and third-tier promotion during the 2023-24 season, before returning three goals and seven assists in the second half of the following campaign while on loan at Ulm.
Paderborn are preparing for their first season back in the Bundesliga and continue to lean on young talent as they build their squad for the step up, with Ulrich set to add creativity and composure to Ralf Kettemann's midfield options for the new campaign.