"I'm really happy to be able to continue working with the players, the organisation, the board and everyone involved," the New Zealander told www.scottishrugby.org on Wednesday.
Cotter took over in 2014 and has been praised for bringing an attacking style, if not a marked improvement in results, to the team as they prepare for next month's World Cup in England and Wales.
"There are some talented players with some things to develop and together we are focussed on facing that challenge in what I think are exciting times for Scottish rugby," he said.
"There's a generation of players coming all the way from the new BT Sport Scottish Rugby Academies, Scotland under-20s and the pro clubs into the national team and I'm pleased to be part of that."
Cotter's team finished bottom of the Six Nations Championship this year but he remains the man trusted with reviving the nation's fortunes.
Scotland face Ireland in Dublin this weekend as they continue their build-up to the World Cup where they will face South Africa, Samoa, Japan and United States in Pool B.
(Reporting by Martyn Herman, editing by Tony Jimenez)
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