The Spaniard, 41, signed a two-year deal when he joined the south coast club in June last year from Rayo Vallecano.
Bournemouth, who have registered their highest-ever Premier League points total this season, are 11th in the English top flight with one game remaining.
"I'm very happy to sign the contract. For me, it is a matter of renewing the confidence from both sides," Iraola said on Monday.
"We have had a good experience with our first season together in the Premier League, and I am happy that both sides want to continue the relationship further.
"I'm proud that we achieved the points record. We are playing in a difficult competition, with very good opposition. The season started slowly, but I think we improved a lot and are playing in the right way.
Bournemouth owner and chairman Bill Foley said: "Andoni has made a huge impact since arriving at the club and we are thrilled to agree to this extension.
"We have achieved a club-record points tally in the Premier League thanks to a series of excellent performances and results from the team."
