The 50-year-old, who took over for a second stint in charge at the King Power Stadium in 2011, led Leicester to the Premier League last season as they won the Championship title.
And he has now been rewarded with a new deal, which will see him remain at Leicester until 2017.
Pearson told the club's official website: "I have always seen my long-term future, and that of my staff, at Leicester City.
"On the back of the success we have worked so hard to achieve, I have always been confident that my future would remain here.
"I feel very proud to be the manager of a club with genuine ambition, a clear direction in which it wants to go and loyal owners that are prepared to support its development."