The former test batsman took over from South African Mickey Arthur in the wake of last year's calamitous tour of India and helped guide the side to a 5-0 Ashes sweep and a series triumph in South Africa that saw them briefly top the world rankings.
"I have thoroughly enjoyed the time I have had in the job and am proud of what we have achieved so far," Lehmann said in a statement.
"I want to continue with the work we have done on and off the field with the team, as I feel we are heading in the right direction.
"I'm grateful that the board has shown faith in me to continue in the job."
Lehmann, widely known by his nickname "Boof", has been credited with bringing a more relaxed atmosphere to the Australian dressing room and encouraging the players to enjoy their cricket first and foremost.
The team's success under Lehmann and captain Michael Clarke has also been built on an aggressive style of play that he carried with him from his own playing career, in which he played 27 tests.
The 44-year-old has also enjoyed his share of good fortune, not least in the rebirth of Mitchell Johnson as one of the most lethal fast bowlers in the game.
"We have been extremely pleased with the results Darren has achieved with the team since he came on board," said Cricket Australia's Pat Howard.
"He has helped create an excellent team environment that has seen players thrive. We want that to continue so we used the winter period to work through an extension to his current contract.
"Importantly it provides continuity for the team and certainty for Darren heading into a critical period for Australian cricket."
Australia play Pakistan in a test series starting next week in the United Arab Emirates to kick off a gruelling year of cricket taking in a home series against India, the World Cup, also on home soil, and an Ashes tour of England.
"At the end of the day I will be judged by results, if the team is not performing then I am answerable," Lehmann added.
"In the meantime, I am looking forward to this current test series against Pakistan then getting stuck in as we lead into the biggest summer of cricket Australia has seen in a long time."
