The 57-year-old, who joined the Bianconeri from Parma in 2010, led Udinese to a fifth-placed finish and Europa League qualification last term.
Udinese chief executive Franco Collavino told a press conference: "We extended the relationship with the coach until 30 June 2017 and this, of course, for the club, is a moment of great satisfaction. We are very happy."
Guidolin told the club's official website that he cannot see himself coaching any other team in Italy.
"My contract renewal was talked about just a couple of months ago," Guidolin said.
"I'm proud to continue to be the technical manager of this team. The contract renewal represents the completion of the extraordinary season last year.
"I do not see myself coaching another team in Italy."