Herman, 43, now is signed through the 2023 season. He is 17-10 in two seasons with the Longhorns.
"I truly love being the head football coach at Texas," Herman said in a university-issued statement. "I'm enjoying every minute of it, [I] am so fortunate to have a tremendous staff, and the players in our program are just awesome to work with."
Herman led Texas to a 10-4 record and a Sugar Bowl win over No. 5 Georgia last season. The Longhorns hadn't posted a 10-win season since going 13-1 in 2009.
Texas finished No. 9 in the final AP Top 25 poll.
"We've done some good things, but have so much more we are preparing to accomplish," Herman said. "I'm excited for the future."
Herman was 22-4 in two seasons at the University of Houston before joining the Longhorns. He has a 39-14 career record as a head coach.
Texas begins its season by hosting Louisiana Tech on Aug. 31.