Monk had previously expressed his desire to stay at the Liberty Stadium beyond his then two-year deal, stating back in May: “Hopefully in the long term I can achieve what I want to here.”
The 36-year-old led Swansea to their highest finish of eighth in the Barclays Premier League last season, setting a new club record of 56 points on the way.
Monk told the club’s official website: “I believe we have put good foundations in place, but now it’s vital we build on that and push forward.
“It is probably going to be the most important and difficult season many clubs will face in the Premier League ahead of the new broadcasting deal.”
Swansea Chairman Huw Jenkins said: “As a club we are pleased to agree the new contract with Garry.
“It’s deserved reward for the fantastic season we’ve just had and all Garry’s hard work, commitment and loyalty to our football club over many years.
“We also feel it is vital to have stability within our football club, especially with Garry going into such a big season where the reward for remaining within the Barclays Premier League is going to be greater than ever in terms of finance and global exposure.”
Monk, who made 270 appearances for Swansea, took over as manager following the departure of former boss Michael Laudrup in February 2014.