The announcement came at a news conference after the Huskies lost their first seven games this season.
Willingham indicated the decision was not his and that he never considered resigning, saying "it's just not in my makeup."
Willingham, 54, has five games remaining in this, his fourth and final season as head coach, including this coming Saturday against the sixth-ranked USC Trojans.
The decision came following meetings between Willingham and Washington Athletics Director Scott Woodward, starting last week, and was finalized Sunday. His current contract was to expire after the 2009 season.
Willingham has a 76-83-1 record as a head coach with Stanford (1994-2001), Notre Dame (2002-2004), and Washington.