Mowbray joined the League One club on a short-term contract in March and steered them to safety with a run of only four defeats in 14 games.
The 51-year-old agreed the deal after extensive talks with the club’s owners and board members which, it is understood, include assurances he can set up an extensive scouting network.
Mowbray said: “We have to place foundations and an infrastructure in my opinion instead of blowing in the wind hoping to find one team, for one particular year to have a good season.
“We need players that the fans associate with that stay here a while and become a foundation. We need this to move forward together as one; manager, players and supporters.
“That’s not something that can be done overnight, it’s a long recruitment process.
“Over the next few years, I’m hopeful the club will be in a better position with the quality of players I hope to attract. We want to get some players to create foundations for years to come, not just a short-term fix.”
The former Middlesbrough, Celtic and Ispwich player became manager of Hibernian before guiding West Bromwich Albion to the Championship title and promotion to the Premier League in the 2007/08 season, later managing his home-town club Middlesbrough and Celtic.
Chief executive Steve Waggott said: “We’re absolutely delighted that Tony has signed a long-term contract with the club.
“Following the club’s final game of the season against Crawley, the club’s owners and the board had talks with Tony on where he wanted to take the club and the blueprint needed to get us there.
“We’ve worked on a lot of details with Tony and, over the coming days, we hope we can announce further changes in terms of the club’s infrastructure.
“That will mean there is a better structure at Coventry City for Tony to achieve his, and all of our, future aims and ambitions.
“He was the overwhelming choice as manager among supporters and many I have spoken to over the past couple of weeks have said securing his services would show a real statement of intent from the club.
“We’ve made that statement now by bringing him in and we see this as a fresh start in taking the club forward.”