Seventh-placed Sunderland have lost three successive league games this month but remain on course for a possible Europa League place after accumulating 37 points from 27 games.
Bruce, 50, left Wigan Athletic to move to the Stadium of Light on a three-year contract in June 2009.
Sunderland chairman Niall Quinn told the club's website: "It was hugely important to bring stability to this football club and I firmly believe that in Steve we have the man to do just that.
"In only 18 months he has reshaped our squad beyond recognition, bringing in some fantastically talented players, many of whom are young and desperate to achieve and improve."
Bruce broke the club's transfer record to sign striker Darren Bent from Tottenham Hotspur for an initial 10 million pounds soon after joining.
He broke the club record fee again in August last year when he signed Ghana forward Asamoah Gyan from Stade Rennes for a fee in excess of 13 million pounds.
Gyan has scored nine league goals this term while fellow striker Danny Welbeck, on a season-long loan from Manchester United, has seven to his name in all competitions.
England striker Bent was sold to Aston Villa for 24 million pounds in January but in came Benin international Stephane Sessegnon from Paris St Germain and Ghana midfielder Sulley Muntari on-loan from Inter Milan.
Sunderland visit Everton on Saturday.
