After missing out on the playoffs in the first two years under the New Zealander and finishing a miserable 16th in 2017, the Waratahs were knocked out in the semi-finals of this year's competition by South Africa's Lions last weekend.
"I am really proud of how this team has developed and improved over the past 12 months to make the final four," Gibson said in a news release.
"While our goal was to bring the Super Rugby trophy home, we can hold our heads high and reflect on a season in which we made massive inroads both on and off the field.
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"The job is not done yet but we are excited about what’s to come."
Wallabies coach Michael Cheika led the Waratahs to their first Super Rugby title in 2014 and to the semi-finals the following year before handing over to Gibson.
The former All Blacks centre still has plenty of work to do to get the Sydney rugby public fully behind an inconsistent team which, despite being laden with Wallabies, mixed brief periods of brilliance with some poor performances this season.
He has recruited Chris Whitaker to his coaching team for next year, the former Australia scrumhalf leaving French club Montauban to return to Sydney.
(Reporting by Nick Mulvenney, editing by Ken Ferris)
