Vincenzo Italiano led Bologna to their first trophy since 1974 when he guided them to victory in the Italian Cup. AFP
Italiano joined Bologna last summer after three seasons with Fiorentina, leading them to the first trophy since 1974 when they beat AC Milan 1-0 to win the Italian Cup.
"I am happy to continue on this journey," said Italiano.
"We have a lot of exciting competitions to take part in and objectives still to achieve together. See you in July, more ready than ever!"
Bologna finished ninth in Serie A but their Italian Cup triumph means they head directly into next season's Europa League league stage.
"We are very happy to extend our relationship with Vincenzo Italiano," said club director Claudio Fenici.
"As we have said on several occasions, this has always been our intention and we are delighted to take on new challenges next season."
While Bologna have opted for stability, other Serie A clubs are set for a turbulent off-season, with coaching changes expected at AC Milan, Juventus, Roma and Lazio.
Even reigning champions Napoli could be affected with the coach Antonio Conte being targeted by Juventus.
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