The 57-year-old Italian has a strong history with the club having managed their for the 1998-99 season before rejoining for a second spell in charge in 2010.
Guidolin has since led Udinese to top-five finishes in Serie A in the last two campaigns, and has now been rewarded with a new contract.
The former Verona player's contract was due to expire in June 2015, but he is now committed to the club until 2017.
He is currently guiding the sqaud through their pre-season preaparations, during which they have already beaten ACS Poli Timisoara 4-1 and lost 3-0 to Bayer Leverkusen in friendlies.
Udinese are working towards their UEFA Europa League third qualifying-round tie, the first leg of which comes on August 1.
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