Gisdol replaced Marco Kurz as Hoffenheim boss in April 2013 and helped save the club from relegation in the play-offs before qualifying for the Europa league with a ninth-placed finish last term.
They currently sit seventh in the Bundesliga ahead of Bayern Munich’s visit this weekend.
“It was an easy decision, we’ve made giant strides in the past two years and I see huge potential,” the 45-year-old said on Thursday.
“We have the ambition to establish Hoffenheim as a major player in one of the strongest leagues in the world, to continually improve the team and to play in an attractive style.'”
With Bayern calling on Saturday, Hoffenheim are on 37 points, two points behind sixth-placed Augsburg.