The former Rio Ave boss was appointed as Juan Antonio Pizzi's successor at the Mestalla in July, with his initial agreement set to expire at the end of the current campaign.
However, with Valencia performing well in La Liga - sitting fifth after Saturday's 1-1 draw with Celta Vigo - the club have agreed a three-year extension.
"Valencia CF and first team manager Nuno Espirito Santo have reached for an extension to his current contract, taking his tenure at the club to 30 June 2018," read a statement on the club's official website.
This season has been the first full campaign with Peter Lim as owner and the club been able to bolster their squad in recent months.
As well as close-season arrivals such as Bruno Zuculini and Shkodran Mustafi, Valencia brought in Enzo Perez recently to help keep their European push on course.
Valencia have taken 11 points from their last five league games and meet Espanyol in the second leg of their Copa del Rey tie on Tuesday, having won the home leg 2-1.
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