Favre extends contract with Dortmund
"Lucien has created clear structures and developed our players," said sporting director Michael Zorc in a statement on Tuesday.
"I am looking forward to continuing a constructive and successful cooperation with the entire BVB team," said Favre, according to the club's official website.
"I'm delighted to have the opportunity to shape the sporting future of this tradition-steeped club," he said, the club tweeted.
Borussia Dortmund finished the Bundesliga in second place, two points behind the title-winner Bayern Munich, under the 61-year-old manager last season.
The German club previously announced the signings of Thorgan Hazard, Julian Brandt and Nico Schulz to bolster Favre's squad.