Lambert has overseen a fine start to the new Premier League campaign with Villa winning three and drawing one of their four top-flight matches, including a superb 1-0 triumph at Liverpool on Saturday which left them second in the table.
The 45-year-old Scot, who moved to Villa Park in June 2012 after leaving his previous role as Norwich City boss, has now been rewarded with a new contract.
"I'm determined that we continue building the club to where we all want it to be," Lambert told the club's official website.
"This is a massive football club, a fantastic football club.
"We can look to the future with real optimism and a determination to make this season successful, and the seasons that follow."
Lambert was charged with the task of succeeding Alex McLeish, who paid the price for a disappointing 2011-12 campaign that saw the club finish 16th.
The former Scotland midfielder's first season in charge was somewhat mixed and Villa only improved their final standing by one position.
Lambert then came under pressure as a result of a disappointing 2013-14 season, in which Villa once more finished 15th after losing 10 top-flight matches at Villa Park - the most home games the club have lost in a league season.
The former Colchester United boss saw his position come under further scrutiny when Villa owner Randy Lerner announced that he was looking to sell the club.
Villa's decision to stick with Lambert has paid dividends thus far, though, with some shrewd experienced signings in the transfer window added to a youthful squad.
Lambert spent spells with Livingston, Wycombe Wanderers and Colchester before he joined Norwich in 2009, then led the Norfolk outfit to the Premier League in May 2011 after back-to-back promotions.
