Pearson has been rewarded for guiding Leicester to promotion to the Barclays Premier League.
Assistant managers Craig Shakespeare and Steve Walsh have also agreed new deals to June 2017.
Pearson, 50, is in his second spell with Leicester having returned to the club in 2011.
Last season was one of the most successful in the Foxes' history as they won the Championship title for the first time with impressive tallies of 31 wins and 102 points, both club records.