The 30-year-old’s one-year deal was due to expire in three weeks’ time.
He said: “I am really pleased to have signed a new contract. MK Dons is a special football club and I cannot wait to continue to create history with the players and staff here.
“I have now been involved with the club for three of the last four years – as a first team coach, assistant manager and now manager – and have thoroughly enjoyed every moment here.
“The fans have been magnificent from day one; they have been a real force behind what we have achieved this season and with their continued support we can drive this club forward.”
