Cashman's contract was set to expire on Oct. 31. Next year will be his 18th season as Senior Vice President and GM of the Yankees.
Financial terms of the deal were not disclosed. Last week, it was reported that New York was working on a new contract for Cashman.
Cashman's extension comes on the heels of the Yankees missing the playoffs in two straight seasons for the first time since 1992 and 1993.
The Yankees finished 2014 at 84-78, their lowest win total since 1995.
The team's higher-ups were reportedly impressed with Cashman's in-season pickups, including starter Brandon McCarthy, infielder/outfielder Martin Prado and third baseman Chase Headley. He also reportedly has a good working relationship with owner Hal Steinbrenner.
Cashman has been with the Yankees since he started as an intern with the club in 1986.
- Molly Geary