After taking over in October 2013, the Uruguayan masterminded the club’s spectacular survival campaign, which saw the team ultimately finish 14th in the Premier League.
And, with his stock high, and Southampton reportedly interested in bringing Poyet to the south coast to replace outgoing manager Mauricio Pochettino, the club have moved decisively to tie their manager down.
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Speaking after signing his new contract, Poyet said: “I am delighted to extend my stay with Sunderland AFC, after an unbelievable season and our famous great escape.
"Stability is absolutely key to long-term and sustained success for any football club, and this new contract gives both the club and me that stability going forward.
“Now it's a different challenge for me and the club and I am relishing the next stage with Sunderland. We achieved so much last season, working together - the club and the fans - and we took many good memories from the season.
"The prospect of creating more of those memories is one which excites me, and now I cannot wait for the next chapter in my career and the history of Sunderland AFC."
Sunderland AFC’s sporting director, Lee Congerton, added: “We are naturally delighted that Gus has committed his long-term future to Sunderland. Our plans are well underway in terms of summer recruitment and we are working hard to bring new faces to the squad ahead of the 2014-15 season.”
Poyet’s backroom team of Mauricio Taricco, Charlie Oatway, Andy Beasley (goalkeeping coach) and Antonio Pintus (fitness coach) will continue to work alongside him.