The 64-year-old Italian said he was more determined than ever to succeed after the FA decided to keep faith with him.
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Capello and his squad came under fire after England's shoddy World Cup performance ended in a humiliating 4-1 last-16 defeat by Germany on Sunday.
Shortly before the World Cup began the FA had confirmed that Capello would remain in charge until the 2012 European Championship but the failure in South Africa cast doubts over his future.
However, after days of speculation it was agreed at a meeting of the Club England Board that Capello, who earns a reported six million pounds a year, would remain in charge.
"I am more determined than ever to succeed with the England team," Capello said on the FA's website.
"(Club England chairman) Sir Dave Richards has called me to tell me everyone at the FA wants me to continue. I explained it is very important we use the disappointment as a motivation in the future.
"I can assure the fans I am now fully focused on our European qualifying fixtures, starting with the friendly against Hungary in August.
"I am extremely proud to be the England manager, it means so much to me and I am determined to succeed."
PUBLIC CONFIDENCE
The decision was taken after a meeting between Richards and his fellow board members, former England midfielder Trevor Brooking, Alex Horne and Club England managing director Adrian Bevington.
"We are all still extremely disappointed at our performance in South Africa, and we believed it was important that we took some time to reflect on everything in a calm and considered manner back in England," Richards said.
"After fully discussing our performance we remain convinced that Fabio is the best man for the job."
Capello's first task will be to restore public confidence in the squad, and his own abilities.
The former AC Milan and Real Madrid coach's tactics and selection policy were castigated by the media and public alike as England toiled through the group stage.
A 1-1 draw with the United States and a 0-0 stalemate with Algeria left England needing a 1-0 win over Slovenia to move through to the knockout stages in second place in their group.
England were then outplayed by a youthful Germany side who inflicted their worst ever World Cup defeat.
With an ageing squad, Capello will be under pressure to quickly inject some vitality into the team as European championship qualifiers against Bulgaria and Switzerland loom.
Frank Lampard and Steven Gerrard have almost certainly played in their last World Cup finals while former captain John Terry, whose outspoken comments were criticised by Capello in South Africa, is also close to 30.
