Financial terms of the extension were not disclosed.
"Our confidence in Nick just continues to grow, and part of that comes from what we've experienced together," Raptors president Masai Ujiri said. "The past two seasons have been unlike any other in our team's history - first, winning our championship, and then navigating a global pandemic and committing long term to the fight against racism and for social justice.
"Nick has proved that he can coach on the court and lead in life, and we're looking forward to accomplishing great things in the future."
Nurse excelled this season after helping the Raptors win their first-ever championship as a rookie head coach. He guided Toronto to a 53-19 mark and a franchise-record .736 winning percentage. Nurse was recently recognized as the 2019-20 Coach of the Year and is the only bench boss to win the award in both the NBA and the G League.
"Toronto has been my home for the past seven years and I look forward to it being home for many more," Nurse said. "I've watched this franchise grow and reach the pinnacle, and I look forward to the challenge of helping us win another championship."
Nurse has accumulated a 111-43 regular-season record and a 23-12 playoff mark as the Raptors' head coach. He owns the highest all-time winning percentage by a Raptors head coach in both regular-season (.721) and postseason (.657) play.