The former Manchester City striker, who took over in the summer of 2011 and has guided the Bees to fourth in League One, has committed himself to the club until May 2015.
He told the Bees' official website: "It is very exciting to be part of Brentford Football Club.
"There has been a lot of progress made in the past 18 months.
"I have seen commitment from sporting director Mark Warburton, from backroom staff who have been approached to move to Championship clubs and who have opted to stay with us, and from players who are signing new contracts.
"It was a no-brainer for me to stay here and be part of an exciting future for the club.
"I can see the commitment from the owner and the board of directors to take the club where we want to take it. And that is not just short-term commitment.
"It is an honour and a privilege to lead the club for the next two years.
"The club has moved on enormously in the past 18 months, in all areas.
"We have changed the playing squad almost entirely and results are going in the right direction at the moment."