The 56-year-old took over the Azzurris following their failure to qualify for the 2018 FIFA World Cup in Russia.
Mancini led Italy to qualify for the 2020 European Championships, winning all 10 group stage games.
Speaking at the end of the FIGC's federal council meeting, president Gabriele Gravina is quoted by ANSA as saying: "It is an investment of the federation for the future, and one that we owed to the fans.
"I am very happy, because as Roberto knows, it was an objective of the federation to continue this job and give it continuity in the future."
Mancini, who was also in attendance, added: "I am very happy, I thank the Federation and I thank the president.
"We have extended the contract, there will be many events and as the president said it is not easy to win, but we are trying to carry out a job that was started three years ago, which up to now has given good results.
"We have many young players to focus on, especially in the youth national teams, so our hope is that this work can bear fruit very quickly, we are very positive."
Italy are in the same group with Switzerland, Turkey and Czech Republic for EURO 2020 which runs from June 11 to July 11.
