According to reports, the deal is for three years with a team option for a fourth year.
"Terry has done an outstanding job during his first two years with the organization," Trail Blazers general manager Neil Olshey. "This extension illustrates our confidence in him as our head coach as well as the Portland Trail Blazers' continued commitment to building a model of consistency and stability."
The Trail Blazers' other accomplishments this season included winning their first playoff series in 14 years when they eliminated the Houston Rockets in the first round. It was Portland's first postseason appearance since the 2010-11 season.
"Portland is a unique and special place and I'm very proud to be the head coach of the Trail Blazers," the 56-year-old Stotts said. "We started the process two seasons ago and laid the foundation for success. I look forward to the possibilities of the upcoming seasons."