The former Republic of Ireland coach took charge at Portman Road in November last year with the team bottom of the Championship and on a winless run of 13 matches in all competitions.
However, he has since guided the Tractor Boys to survival and as a result has insisted that he will continue in the role.
"I'm staying. The agreement was I'd stay if we stayed up, I'd go if we went down. Relegation would have been a disaster for this club and there would have been a whole host of changes," the East Anglian Daily Times quotes him as saying.
"If somebody had said to me when I arrived that it would need 60 points to stay up when we had seven, I would have said 'do my a favour, we won't get anywhere near it'. It's just been remarkable this league."
Ipswich have picked up 53 points from McCarthy's 32 games at the helm.