The 39-year-old steered the Tykes to npower Championship survival following their last-day draw at Huddersfield after taking on the role of manager at the end of December.
Former boss Keith Hill had been sacked and Flitcroft was handed the job following a brief spell as caretaker after Sean O'Driscoll and Terry Butcher had both turned the job down.
A brief statement on the club's official website read: "Barnsley Football Club are delighted to announce that David Flitcroft has agreed terms and will remain as first-team manager at Oakwell.
"The new deal will also keep David Flitcroft's assistant manager Micky Mellon, technical coach Martin Scott and the other backroom staff at Oakwell.
Further details of the deal will be announced at a press conference next week.
Flitcroft proved an instant favourite with the Oakwell faithful.
His first job in charge ended in defeat at relegation rivals Peterborough on New Year's Day, but the fans' reaction following a home FA Cup win over Burnley in his next match convinced him to put himself forward for the job full-time.
The former Chester, Rochdale and Bury midfielder guided the Tykes to eight wins in his first 10 matches and led them to the quarter-finals of FA Cup against Manchester City.
Flitcroft lost only six of the 25 matches in which he was manager during the second half of the season.