Low, who took over from Jurgen Klinsmann after the 2006 World Cup in Germany, steered his team to the Euro 2008 final where they lost to Spain. Germany also qualified top of their group for next year's World Cup finals in South Africa.
"We are in agreement that we want to continue together with the national team," said DFB President Theo Zwanziger. "We had a talk on Tuesday and per handshake agreed to extend the contract until after the 2012 European championships.
"I am happy that we have the come early to a basic agreement," he added.
Low, 49, has been in charge for 45 internationals with the team winning 31, drawing eight and losing six.
Zwanziger said the new deal would be signed in January.
Team manager Oliver Bierhoff, assistant Hans-Dieter Elick, goalkeeping coach Andreas Koepke and chief scout Urs Siegenthaler will also stay on.
"It was important for me to have a discussion with the DFB president," said Low.
"There is the fundamental readiness to continue our work until after the 2012 Euro. Until the signing of the contract some points need to be discussed and cleared, which are important for the work of my team," he said on the federation website.
Prior to taking over the top Germany post, Low was Klinsmann's assistant and had also coached VfB Stuttgart as well as teams in Turkey and Austria.
Germany have been drawn in a group with Serbia, Ghana and Australia at the 2010 World Cup finals.
