The 44-year-old German has been in charge at Carrow Road since the summer of 2017, guiding Norwich to two promotions into the top flight.
Farke secured promotion to the Premier League in his second season at Norwich but the club suffered relegation straight away before he got them promoted again last season.
The former Borussia Dortmund reserve manager will be hoping to keep the Canaries in the top flight this time round, with their first outing of the season at home to Liverpool on August 14.
'I'm absolutely over the moon and feel pretty emotional in such a moment,' he said in a club statement announcing the new deal.
'I'm unbelievably grateful for all of the trust and support. It is a pleasure to be allowed to continue to work on this level with such a special club.
'I must also thank (sporting director) Stuart Webber for his trust and backing, my staff and players, as well as the supporters. We have a pretty special relationship in this club.
'Now it's about going the next step, doing everything we can to make sure this club becomes an established Premier League side.'
Sporting director Stuart Webber added: "It's great news for the football club. Daniel and his staff have been a huge part of what we are building and to tie them down to new deals was one of our key objectives at the start of the summer.
"We're in an uncertain world at this moment in time, so to have some stability and security at the football club is important.
"Daniel fully understands the club and what we're about. He buys into all facets of what we're doing here and has played a leading role in getting us to this position.
"We can now look forward to our plans for the season ahead, knowing that we have the future of our head coach and staff secured. It's an exciting period for us with a view to what comes next."
