The 50-year-old, who arrived at the Stadium of Light in the summer of 2009, has been in discussions with the Black Cats for some time and has now put pen to paper.
Sunderland are currently seventh in the Barclays Premier League and bidding for a first top-10 finish in the top flight in a decade.
Signing on: Steve Bruce has committed his long-term future to Sunderland
Bruce said: 'I'm delighted to have signed a new contract. It's a magnificent club from top to bottom with wonderful support and everything is in place here for a manager.
'We have the makings of a fantastic young team. It's been a great challenge so far and one that my backroom team and I have relished, so we are looking forward to continuing with that over the next few years.'
Chairman Niall Quinn, who along with owner Ellis Short has provided Bruce with the financial backing to rebuild the squad, was delighted to have reached an agreement.
He said: 'It was hugely important to bring stability to this football club and I firmly believe that in Steve we have the man to do just that.
Bright future: Sunderland are hoping to bring European football to the Stadium of Light
'In only 18 months he has reshaped our squad beyond recognition, bringing in some fantastically talented players, many of whom are young and desperate to achieve and improve.
'He embodies the ethos of team-work and the importance of camaraderie in creating a wonderful spirit of togetherness amongst the players and staff.
'As someone born and bred in the north east he fully understands the unique passion for football in this region.
'He has already raised the aspirations of not only the players, but also the supporters, and instilled a belief in everyone that we can go on to achieve the sustained success that we all crave for this club.'
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