The Board of Control for Cricket in India (BCCI) did not reveal the duration of the extension but it is likely to cover the T20 World Cup in the West Indies and United States in June.
"The BCCI engaged in productive discussions with Rahul Dravid after the term of his contract ended ... and unanimously agreed to further the tenure," the board said in a statement.
The BCCI acknowledged Dravid's "exceptional professionalism" as coach of the side which reached the finals of the World Test Championship and the ODI World Cup this year losing to Australia on both occasions.
The board also praised former Test batter VVS Laxman, who was expected to succeed Dravid in the role having occasionally filled in for his former India teammate, saying he had shown "exemplary" service.
BCCI secretary Jay Shah said Dravid had made India a "formidable" force.
"Team India is now a formidable unit across formats, and our top ranking in all three formats directly reflects his vision, guidance and the roadmap he charted for the team," he added.
"Having won 10 consecutive games before the final, our World Cup campaign was nothing short of extraordinary, and the head coach deserves appreciation for setting up the right platform for the team to flourish."
Dravid said he thoroughly enjoyed the last two years in charge of the side.
"I am genuinely proud of the culture we have set in the dressing room," the 50-year-old said.
"I thank the BCCI and the office bearers for placing their trust in me, endorsing my vision, and providing support during this period."
"As we embrace new challenges post the World Cup, we remain committed to the pursuit of excellence."
Laxman is currently guiding a second-string India squad in a five-match T20 series against Australia. Dravid is likely to reclaim the coaching reins for India's tour of South Africa next month.
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