The New Zealander, who took over in 2013, admitted his decision had taken longer than expected.
"It is difficult at times being so far away from extended family but we appreciate how lucky we are to have the support we have in Ireland," he said.
Schmidt, 51, guided Ireland to Six Nations titles in 2014 and 2015.
In the 2015 World Cup they lost to Argentina in the quarter-finals, and finished third in the 2016 Six Nations after losing to England and France.
Ireland play New Zealand twice in the autumn internationals and also have matches against Canada and Australia.
Schmidt took over from Declan Kidney as Ireland coach in 2013.
Ireland head coach Joe Schmidt has agreed a contract extension and will stay in charge until the end of the World Cup in 2019.