Collins, 66, had been in the final guaranteed year of his existing deal this season.
The new contract was formally announced Wednesday, when general manager Sandy Alderson and Collins met with the media at 11 a.m. ET at Citi Field.
This likely will be Collins' final contract as a manager. He has indicated an eagerness to retire after managing a couple of more seasons.
"I think it's well deserved," captain David Wright said. "Credit should be given to TC and his coaching staff for aiding and preparing us for this success. This preparation started years ago, and I'm thrilled this coaching staff has helped lead us to a World Series appearance."
Collins just became the second-oldest first-time manager in World Series history. Only Jack McKeon at age 72 in 2003 with the Marlins was older.
Collins guided the Mets to a 90-72 record this season, snapping the organization's string of six straight losing seasons.
His career record with the Mets is 394-416 in five seasons. He also managed three years apiece with the Angels and Astros in the 1990s.
Collins already has been voted by his peers as the NL Manager of the Year in a poll by the Sporting News. He will be a contender for the official Baseball Writers' Association of America award to be announced on Nov. 17, with other candidates including the Cubs' Joe Maddon and Cardinals' Mike Matheny.
Collins has noted he has become more of a player-friendly manager with the Mets than during his tenures with the Astros and Angels two decades ago.
"My job is to pretty much make sure the players are on board with everything we're doing," Collins said during the World Series. "So I think I've changed a lot there."
Terry Collins, Mets agree to contract extension
Mets GM Sandy Alderson announces the two-year contract extension for manager Terry Collins, through the 2017 season.