After taking over from Justin Langer when the former coach quit in 2022 when he was only offered a new six-month contract, McDonald has led Australia through a busy period.
McDonald was at the helm last year when Australia toured India, won the ICC World Test Championship for the first time, retained the Ashes in England, before securing a stunning triumph in the ODI World Cup in November.
Australia will embark on an even busier schedule in three years' time.
The Border-Gavaskar Trophy battle will be five matches, up from four, in 2027 as Australia try to win a Test series in India for the first time since 2004.
Added into the 2027 mix is the one-off 150th anniversary Test against England at the MCG in March.
Australia will then return to England later in the year to attempt to win an away Ashes series instead of drawing, as they have on the past two tours.
"Andrew has proven to be an outstanding men's head coach who, as well as delivering exceptional results, has built a strong coaching team, methodology and an excellent environment for the team to perform at its best," Cricket Australia boss Nick Hockley said.
McDonald was delighted to have extended his tenure for a further two years.
"I am very fortunate to have an exceptional group of leaders, players, coaches and staff who are fully invested in the ongoing wellbeing, success and development of this group,'' he said.
"International cricket has many challenges for all teams, and I am particularly proud how the group, players and staff across all formats have navigated those together."
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