The former sports administrator replaced Geoff Marsh as coach in 1999 and has overseen Australia's domination of the game in both Tests and one-day internationals.
"The last four years have been a wonderful experience for me and I'm extremely grateful to have the opportunity to be associated with the Australian team for another two years," Buchanan said in a statement on Saturday.
"We have had a great deal of success so far but now the challenge is to raise the bar again and we will be trying to do just that."
During Buchanan's time in charge, the Australians set a world record of 16 consecutive Test wins and 21 straight limited-overs victories, including a clean sweep of this year's World Cup.
Cricket Australia Chief Executive James Sutherland said: "We are very pleased to have been able to extend John's contract.
"Since his appointment John has played a major role in Australia's international success.
"The Australian Test and one-day international sides are now regarded as the best in the world and one of the reasons for that is because we have a world-class support team."
