Hughes revealed back in January he was in talks with the club over a new deal, with his existing contract due to run out at the end of next season.
The former Manchester United star has been at the Britannia Stadium since May 2013 and has guided them to 10th in the Premier League this season.
“I’m delighted to have signed a new contract. I think it’s exciting times for Stoke City; everyone can see there’s more progress to be made and we want to see how far we can take the club,” he told the club’s website.
“I came here 18 or so months ago and it’s gone as well as I could have hoped – we’ve certainly kept progressing which is vitally important from my point of view.
“This season has been more difficult than last season due to circumstances, like injuries to key players, but we’ve still been very competitive and I believe we can do even better next season with a little bit more investment. Let’s see how far we can go.
“Continuity is a huge thing in football, certainly in the Premier League, and hopefully the fact I’ve signed a new contract will give continuity to the Club and, more importantly, the players because it helps them when they work with someone for a prolonged spell.
“They know what to expect and know the quality of work they are going to get and that’s important moving forward.”