The 39-year-old, who played for the Parkhead club between 2000 and 2007, had previously been on a rolling six-month arrangement since being appointed last year.
“I am absolutely delighted to agree this new contract with the club,” he said. “I have had ten great years connected to Celtic and I hope to enjoy many more.
“I said when I was appointed manager that we wanted to re-ignite Celtic Park and make it the place it should be - one of Europe’s finest, most atmospheric football arenas. There is no question this happened.
“I know that myself, the Board, my management team and all my players will be doing all we can to ensure that our fans have a team they can be proud of.”
The Hoops were the recipients of the Scottish Cup last season but fell short of the SPL title as Rangers snatched it on the last day.
Off-pitch, the season saw Lennon receiving bullets in the post, being the subject of bomb threats and being attacked by a fan at Tynecastle.