The 43-year-old former All Blacks centre has been in charge since taking over from Michael Cheika in 2016 and last year led the Waratahs to the Australian Conference title and the Super Rugby semi-finals.
Their record of nine wins, one draw and six losses would have seen them finish only fifth in the New Zealand conference, however, and patches of brilliant attacking rugby were balanced by some sub-par performances.
While that followed an 8-7 win-loss tally under Gibson in the 2016 season and a woeful 4-11 record in 2017, Waratahs Chief Executive Andrew Hore remains convinced his fellow New Zealander is building a solid platform for the future.
"For Daryl, the focus has been on putting the structures and systems in place to not only bring through the younger talent, but invest in coaching and support staff," Hore said in a news release.
"It hasn't been all smooth sailing over the years, but I'm a firm believer that during the ‘dark times’ comes great learnings and Daryl has been able to ensure we have better systems and processes in place that will continue to develop our game."
Gibson, who was an assistant coach at the Canterbury Crusaders before joining Cheika's staff in 2013, said it was a "real privilege" to get another year with Australia's best resourced provincial team.
"I’ve been very open that I want to bring the next generation through as well as bed down the systems we have been working hard to put in place to keep our best rugby talent in the game," he said.
"We have some great people in our ranks and I am excited to be working with them and hopefully delivering some more great results as we build towards the future."
The 2014 Super Rugby champions, currently homeless because of the redevelopment of the Sydney Football Stadium, will kick off the new season against the Wellington Hurricanes at Brookvale Oval on Saturday.
(Reporting by Nick Mulvenney, Editing by Peter Rutherford)
