The Spanish champions announced on Tuesday they had agreed a contract extension that will tie Mourinho, who signed an initial four-year deal when he joined the club in 2010, to the Bernabeu until June 2016.
The 49-year-old led Madrid to the Copa del Rey crown in his first season in charge and in the campaign just completed he guided the club to their first La Liga title since 2008.
That success, which ended Barcelona's three-year reign as Spanish champions, saw Mourinho become the first coach to win the league in Spain, England (Chelsea) and Italy (Inter Milan).
And, ominously, Mourinho reckons the Madrid squad is only going to get better.
"I've always said this squad is young and that its best years are yet to come," the Portuguese said on www.realmadrid.com. "It isn't a squad with players on the verge of extinction or playing their final years of top tier football. The club, with its incredible social reach and structure, can adapt to the times and to what we're trying to do.
"As a manager, I always try to grow and improve. I've loved the professional experience I've had of working for different clubs in different countries and cultures, and to learn from that while giving my best. I've loved that process.
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"It's different for me now because I'm thinking about a club long term, and that club is Real Madrid, which has been more demanding and has forced me to do my absolute best due to its difficulties.
"I've had to improve as a coach and a professional. I think it is the perfect challenge for the next four years because you always have to do more when things are hardest. I need these great challenges in the maturity of my career; I need things to force me to be better."
News of Mourinho's decision should end speculation about his future, with recent reports linking him with the vacant managerial position at former club Chelsea.
"I feel happy," he said. "I wouldn't have signed this contract extension otherwise. I would like Madridistas to be happy, not just myself, the president [Florentino Perez], [general director] Jose Angel Sanchez and the board. They've had faith in me and believe I am the ideal coach for the project we have until 2016.
"I would want Madridismo to be happy about this. I think most of them will be happy with the decision I and the board have reached. I've been talking to the players in the last few months analysing this situation and I profoundly feel the squad in general is happy with this decision.
"My wife and children, who are key in my decisions, are as well."
Asked what prompted him to put pen to paper, he replied: "The overall project; the wish of the president to have a long-term project, which is something unusual in today's football; the confidence he has always had in me and my work; and the special feeling I always said was important when there were rumours about me leaving.
"I've always said that's very important to me and that I would stay while the fans, the team and the club were happy and confident in with my work. I've got to know this club and its great qualities better, as well as the small problems it has like any other institution or person.
"I'm delighted to stay on and plan the sporting future of Real Madrid's first team, and we know we must obviously focus more on the short term and talk little about the distant future."