The timing of the deal comes less than a week after Newgarden captured his second consecutive victory in the Indianapolis 500, which gave legendary team owner Roger Penske 20 wins in IndyCar's blue ribband.
Newgarden first joined Penske in 2017, winning the first of his two titles that year before adding his second in 2019.
Of his 30 career victories to date, 27 have come with the organisation, while he has also captured 16 poles.
“Josef Newgarden is a true winner, and we are excited that he will continue as a part of Team Penske for years to come,” said Roger Penske.
“What he did Sunday in the Indianapolis 500 shows how Josef consistently delivers for our team and our partners on the track, and he is just as impressive off the track as well.
“We are proud to have Josef continue with our organisation as his skill and passion embody what it means to be a Team Penske driver.”
The 33-year-old also became the first driver in Team Penske history to win the Indy 500 and the Daytona 24 Hours in the same season, as in January he helped the team to an overall win in the endurance classic for the first time since 1969.
“Driving for Roger Penske and this iconic team is a dream that I never thought I would realise,” stated Newgarden.
“I’m thankful for the opportunities that I’ve been given during my time at Team Penske. I have a great amount of respect for the individuals that comprise our group, including the partners who support us.
“Our time together has been filled with hard work, teamwork and dedication; and I’m so excited that we will continue on for many more years to come.
“I’m sure that we can achieve much more in the future. I still believe we haven’t reached our full potential together just yet.”
Newgarden currently sits seventh in the overall standings, 61 points behind reigning champion Alex Palou (Chip Ganassi Racing), despite having his win and points taken away following the push-to-pass scandal at St. Petersburg back in March.
