The 44-year-old former Australia all-rounder, who joined Gloucestershire as a player in 1999, has been on their coaching staff since 2015.
"It certainly wasn't a hard decision to stay," the 2003 World Cup winner said.
Chief executive Will Brown added: "Having Ian extend his coaching contract is fantastic news for everyone associated with Gloucestershire."
Gloucestershire assistant head coach Ian Harvey has extended his contract with the county until the end of 2019.