The deal was made prior the Capitals' 6-3 loss Saturday to Pittsburgh. Kolzig, 35, has spent his entire career with the Capitals since they selected him in the first round of the 1989 draft.
In 586 games, he has a .908 saves percentage and a 2.62 goals-against average.
"This is the only team I've known, and I'm very optimistic about where the organization is going," Kolzig told The Washington Post, which reported the extension will pay him $5.45 million each of the next two years -- a considerable raise over the $4.94 million he was to make this season. "If we could ever win a Stanley Cup here during my time, it would be the ultimate dream."
There had been speculation that Washington would deal Kolzig before the March 9 trading deadline.