Rockets general manager Daryl Morey relayed the news via Twitter Wednesday morning.
"Very excited about Coach McHale's extension," Morey tweeted. "He is the winningest coach in Rockets history and knows what it takes to win championships."
Though the Rockets have yet to reveal terms of the new contract, Yahoo! Sports reported the pact to be worth close to $13 million.
McHale was in the final season of the original four-year deal the Hall of Fame player signed to become Houston's head coach in June of 2011.
The 57-year-old's long-term status with the organization had been unclear entering this season, with the Rockets losing in the first round of the playoffs in each of the previous two years. However, Houston got off to a 9-1 start and ranks among the Western Conference's top teams with a 20-7 overall record.
McHale owns a 153-104 record in his three-plus seasons with the Rockets and guided the team to a 54-win campaign in 2013-14, the franchise's largest victory total since 2007-08.
The three-time NBA champion previously spent two separate stints as the Minnesota Timberwolves' head coach, compiling a 39-55 record with that franchise.