The agreement also includes an option for the 2020 season.
Gibbons has guided the Blue Jays to the American League Championship Series in each of the past two seasons. The team went 89-73 in 2016 after going 93-69 the previous season.
Gibbons, 54, is 339-309 in four seasons in his second managerial stint with Toronto. He compiled a 305-305 mark in parts of five seasons from 2004-08.
Earlier Tuesday, Gibbons fielded a question about a possible extension.
"It's common knowledge we've been talking about things," Gibbons told reporters in Sarasota, Fla. "We've made progress. Hopefully it all falls into place. These guys have been good to me. No complaints. We've been talking about it."
Gibbons has a 644-614 overall mark in parts of nine seasons.