The 64-year-old, who has been in charge of the national team since 2000, has penned a contract extension until the end of July 2016.
Olsen was unable to guide the team ranked 25th in the world to next year's showpiece event in Brazil as Denmark finished runners-up to Italy in Group B of UEFA qualifying, winning four of their 10 games.
Their record was the worst of the nine group runners-up, meaning they did not qualify for the play-offs.
The former Brondby, Cologne and Ajax coach, though, was at the helm when Denmark progressed to the round of 16 at World Cup 2002, where they memorably defeated France 2-0 in the group stages, and will now be tasked with reaching the 2016 European Championship.
Olsen said in a statement on the Danish Football Association's (DBU) official website: "There were probably many who are still annoyed that after the first two places in the two previous qualifiers, we only reached second place this time and will not be part of next summer's World Cup finals.
"But now we put the disappointment behind us and use the experience in a constructive way to look forward to the next period."
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