The 67-year-old Italian replaced Dick Advocaat in the role in July 2012 and led his team to the 2014 World Cup finals as Group F winners, one point ahead of Portugal.
Russia will host the competition in four years' time and with the country therefore qualifying automatically, former England manager Capello will be able to start planning for the World Cup once the 2016 European Championships in France are over.
In a statement published on the Russian Football Union's official website on Friday, Capello said: "I am grateful to the president of the RFU and to the Russian minister of sport for their confidence in me.
"I am very pleased to continue working with Russia. We have big plans and I will do everything I can to ensure the Russian fans are happy."
Having signed a two-year contract in 2012, there were reports that Capello - who coached with great success at AC Milan, Juventus, Roma and Real Madrid - could be tempted into making a return to club management following the Brazil finals.
He was linked with the vacancy at Tottenham following the December sacking of Andre Villas-Boas, but caretaker boss Tim Sherwood was duly handed the role on a permanent basis to end speculation.
RFU president Nikolai Tolstoy said: "We are pleased that such a highly qualified coach, Fabio Capello, will continue to work in Russian football.
"The document stipulates that Fabio Capello will oversee the institution of all national Russian football teams and he will be assisted by Russian specialists at the headquarters of the national team."
- Sports & Recreation