The American, who has been at the club since leaving Manchester United in 2007 and has seen increased competition for his place in 2013-14 following the arrival of Joel Robles, is now due to remain on Merseyside until the age of 39.
"He has been vital to our overall achievements," said manager Roberto Martinez.
"It's not just about his performances. As a goalkeeper, you have a big say about what happens in your own goal and to keep the amount of clean sheets that we have this season – which is already two more than last season when we had very good numbers defensively – is impressive.
|9/4||Everton are 9/4 with Bet365 to keep a clean sheet against Manchester United|
Martinez is adamant that there is no issue in handing such a lengthy deal to a 35-year-old, enthusing: "Being a goalkeeper is not like being an outfield player. It is a sport within a sport.
"Tim is a very fit 35-year-old and, as a goalkeeper you probably develop the best years of your career in your 30s because you can anticipate things, dominate your area and control the players in front of you.
"It is a very good age for Tim and I know he will play on beyond 40. He is a fit man and at the peak of his powers.
"He is a unique role model. Just to be a foreign goalkeeper with international experience, being a legend back home, then coming to the British game and playing over 10 seasons, that is remarkable. To do it in the manner he has done, always reliable, always accumulating incredible numbers, is phenomenal."