Assistant manager Ian Woan has also signed a new four-year deal with the Clarets, who are playing in the Premier League for the sixth successive season.
Dyche, 50, has been at Burnley since 2012 and is the longest-serving manager in the Premier League.
Among his achievements are their first European qualification in 51 years.
During his nine-year spell he has also successfully guided the club to two promotions from the Championship and two top-half Premier League finishes.
"It is nice to be able to get this deal completed and now look towards the future of this football club, and its constant evolution," Dyche said.
"It was an important summer for us to add talent and depth to the team, but the work doesn't stop there. As a club we're about developing and improving players, and the environment we foster here is so important to that."
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