The former DC and United States midfielder took charge of the club in 2010 and has led his side to the top of the Eastern Conference this season.
DC United general manager Dave Kasper praised Olsen for the culture and style he had instilled at the club.
"Ben has re-established a winning culture at DC United, and I'm very pleased that he has reached a multi-year agreement with the club to continue his excellent work," Kasper said.
"He has forged a playing style that is very effective in MLS, and fostered an identity that 'the team is the star', one that our fans in the DC metropolitan area are very proud of.
"I look forward to continuing a strong working relationship with Ben with the goal of adding more silverware to our trophy case."
DC are looking to win the conference title for the first time since 2007, while they are aiming for their fifth MLS Cup.
