Nuno steered Wolves to the Championship title with a 99-point haul during his first season in charge last term, taking the club back to the Premier League for the first time in six years.
The new deal will see Nuno and his backroom staff extend their stay at Molineux to 2021, while Ian Cathro has also joined the club's coaching staff on a three-year deal.
"I am very thankful because of the trust and the confidence that the club puts in us as a technical team. My team really work as a team. First of all we are friends, we respect each other, we admire each other and we work for the same goal. That goal is to find every detail we can to help the team to perform well, compete well, and fortunately win," Nuno told the club's official website.
"We knew that the project required time and now we have three years ahead of us of contract, and we are very, very thankful and delighted to be here. When we came there was a big challenge in front of us. I think the Championship is one of the most challenging competitions in the world.
"So we started with the ambition to have a team that could compete in every game and create an identity that was a shape, a formation, that allowed us to go through all the competition playing the same stye, in the same way. We did it, and we achieved what we wanted. We have a team, and we are in the Premier League, and we are now in year two.
"In year two we know the challenge is even more difficult, but we have something that we hold onto - we have our own identity. The players know how we play, they know and understand our game. We have to hold onto it, further develop the performance of some players, getting them to a higher level, and at the same time we will increase the quality."
Wolves will begin life back in the Premier League with a home match against Everton on August 11.