Despite the Dragons long shots to make this season's top eight, the club announced a two-year extension for Flanagan, which follows the recent appointment of former Parramatta and Warriors coach Daniel Anderson as the club's head of recruitment and pathways.
Flanagan was off contract at the end of next season.
In a statement the club said Flanagan's extension "reaffirms the club's commitment to stability, growth, and a long-term vision for success both on and off the field".
"Shane has played a critical role in setting the foundation for where this club is heading," Dragons boss Tim Watsford said in a statement on Friday.
"He's re-instilled belief in our playing group, coaches and supporters together with reiterating the privilege of wearing the Red V."
Preparing for Saturday's derby clash with Cronulla, who he coached to a historic premiership in 2016, Flanagan was excited by his future at the Dragons, particularly after luring Anderson from the Sydney Roosters.
"It's a privilege to continue to coach the Dragons, a club built on such a rich history," he said.
"The playing group is full of talent and I'm excited by the prospect of realising success for the Red V over the coming years.
"It's clear the club is setting structures and processes in place to deliver outcomes for years to come and to be entrusted by the board and management is something I don't take for granted."
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