Daniels had one year left on a two-year deal but was rewarded for helping build a team that last season reached the World Series for the first time in franchise history.
"We are very pleased to announce this extension with Jon," said Rangers President Nolan Ryan. "Jon and his baseball operations group have done an outstanding job in building an organization that will allow the Rangers to contend for postseason play year in and year out.
"The efforts in scouting and player development as well as sound decisions on the major league level have put our franchise in a good position. We look forward to Jon leading our baseball operation for many years to come."
When Daniels took the job in 2005 at the age of 28, he became the youngest general manager in the history of Major League Baseball. The Rangers have had an increase in their victory total each of the last four seasons, posting a 90-72 record last year and then defeating Tampa Bay and the New York Yankees to get to the World Series.
Texas fell to San Francisco in the World Series.
"I am appreciative of the faith that ownership has shown in our baseball leadership group," Daniels said. "We're proud of what we've accomplished to this point, but clearly we have more work to do to reach our ultimate goal."