The 61-year-old, who has been in charge since September 2014 and masterminded a huge reversal in fortunes, guided Portugal to their first major international tournament win despite having to do without Cristiano Ronaldo for most of the final against hosts France earlier this month.
His new deal takes him through the 2018 World Cup in Russia and to the next European Championship.
"The new contract between the FPF and Fernando Santos will be in force until the Euro 2020," the Portuguese Football Federation (FPF) said in a brief statement.
Santos built his career with top clubs in Portugal – Benfica, Sporting Lisbon and Porto – and in Greece, as well as coaching the Greek national side.
