Schubert, who took over early last season after a five-game losing start under Lucien Favre, led Gladbach to a fourth place Bundesliga finish and a spot in the Champions League qualifiers.
"Andre is doing great work," Gladbach sports director Max Eberl said in a statement on Tuesday. "He led the team to the Champions League and in 34 league games under his guidance we got 65 points. That is outstanding work."
The 45-year-old coach initially joined Gladbach in July 2015 as an Under-23 coach before taking over the first team in September on an interim basis.
He was offered his first contract that ran to 2017 in November of that year after a run of six wins and a draw in his first seven matches.
The German side take on the Spanish champions in their second Champions League Group C match on Wednesday after losing 4-0 at Manchester City in their first game.
(Reporting by Karolos Grohmann, editing by Ed Osmond)
