The 39-year-old initially took charge on a caretaker basis after Keith Hill was sacked on December 29 with the Tykes bottom of the Championship table.
Flitcroft was appointed manager after two wins in three games and Barnsley then enjoyed a run to the quarter-finals of the FA Cup where they lost at Manchester City.
Barnsley eventually secured survival in the Championship after a draw with Huddersfield on the final day of the season and Flitcroft, whose contract expired this summer, expressed his desire to remain in charge following that game.
He has now agreed a new deal with the club which will also see assistant manager Micky Mellon, technical coach Martin Scott and the other backroom staff stay at Oakwell.
Flitcroft lost only six of the 25 matches in which he was manager during the second half of the season.