Under Bochy, the Padres were 70-74 last season and posted the most improved winning percentage in the National League (.486), up from 1994, when San Diego was 47-70 (.402) in the strike-shortened season.
"Bruce Bochy has earned the confidence and respect of his players and he has the full support of ownership and management," said Padres president Larry Lucchino. "He has grown up in this organization as a player, coach and manager. He has the combination of baseball knowledge and people skills that will help take the Padres to the next level."
Bochy, 40, spent the final five seasons of his 10-year major league career in San Diego and began managing in the Padres' organization in 1989.
The Padres also announced Saturday that they have agreed to contract terms with pitchers Scott Sanders and Bryce Florie, infielder Roberto Petagine and outfielder Melvin Nieves. The moves leave four players unsigned on San Diego's 40-man roster.