The Liga club have had been in fine form this season, and sit second ahead of local rivals Real Madrid with just Barcelona above them.
They have also qualified for the Copa del Rey final thanks to a 4-3 aggregate sem-final win over Sevilla, setting up a mouth-watering cup clash against Jose Mourinho’s men in May.
A statement released on Tuesday afternoon by the club said: "Atletico Madrid and Diego Simeone have agreed to renew the coach's contract for the next four seasons.
"The coach, who represented los Rojiblancos as a player in two separate periods [1994-97 and 2003-05] including the historic double-winning time in 1996, returned to Atleti in late December 2011 to take over the first team.
"Simeone won two European titles in his first year as Atletico coach - the Europa League and the Uefa Super Cup - and this season has qualified the team for the final of the Copa del Rey."
The Argentine cut his teeth on the coaching front at the likes of San Lorenzo and Catania before succeeding Gregorio Manzano in the Atleti hotseat, and has seen his reputation soar while at the Vicente Calderon.
He has been mooted as a surprise replacement to Mourinho at the Santiago Bernabeu and as an alternative to Andrea Stramaccioni at Inter or Rafael Benitez at Chelsea.