The 52-year-old joined Newcastle's coaching staff back in 2012 and took on the role of head coach at the start of last season, working alongside director of rugby Dean Richards.
"I'm chuffed to bits to agree the new deal," he told the club's official website. "I can continue with the work that we have started. We went a long way last season, with the club now playing an entertaining and exciting brand of rugby and now we want to see more wins."
The Falcons finished last season in 11th place in the table with five wins from 22 matches.