Packers General Manager Ted Thompson said the contract runs through the 2012 season.
" We have accomplished some of our goals over the past two seasons, but there remains much left to be done," McCarthy said. "I am excited by the opportunity to meet those challenges and someday return another Lombardi Trophy home to Green Bay."
The Packers were 14-4 this past season, and won the NFC North Division title. Green Bay advanced to the NFC Championship Game, then lost to the New York Giants, which beat the New England Patriots in Super Bowl XLII.
The 2007 season was McCarthy's 15th in the NFL, and his second as head coach of the Packers. Green Bay was 8-8 in 2006.
McCarthy was offensive coordinator for one season before taking over the Green Bay job. He also served as the offensive coordinator for the New Orleans Saints from 2000-04. He previously coached with Green Bay in 1999, as the team's quarterbacks coach.