The 42-year-old is a former assistant to Stephen Larkham and took over last year after the Wallabies great stepped aside to concentrate on his Australia role full-time.
McKellar led the Canberra-based team to 10th in the mainly southern hemisphere competition last season with a record of seven wins and nine losses, excluding them from the postseason for the first time since 2012.
The former prop's extension keeps him in charge until the end of the 2021 season.
The Brumbies said in a media release that McKellar had "overseen an impressive turnaround in performances that has seen confidence grown ahead of the forthcoming Super Rugby campaign."
"I think it’s a vote of confidence, not just in myself but in the program in general, the assistant coaches and the high-performance staff," said McKellar.
"It’s a sign that ... the board are happy with the direction the team is heading."
Despite boasting a test-strength forward pack and the strongest defence in the Australian conference last season, the Brumbies were derided by pundits as one of the stodgiest teams in Super Rugby and suffered from dwindling crowds.
A late flurry of four wins from their last five matches flattered a mostly disappointing season for the twice-champions.
"Dan has helped foster a positive environment for players to develop both on, and off, the field and I believe that it is important that we have stability and continuity within our coaching structure over the next couple of years," Brumbies CEO Phil Thomson said.
"We are looking forward to this season with enthusiasm and anticipation."
The Brumbies kick off the Super Rugby season against the Melbourne Rebels in Canberra on Friday.
(Reporting by Ian Ransom; Editing by Nick Mulvenney)
