The former New Zealand off-spinner has been coach of the national team since 2003, during which time the team has risen to third place in the International Cricket Council (ICC) one-day rankings.
New Zealand were beaten in the semi-finals of the World Cup this year and have a record of 44 wins, 32 losses and six no results under Bracewell.
The team has been less successful in Test cricket, winning nine of 27 matches, losing 12, and drawing six for seventh place in the ICC rankings.
New Zealand Cricket (NZC) chief executive Justin Vaughan said Tuesday Bracewell had made good progress with the team "and we are delighted to retain him as the team's coach."
"Recent changes to our high performance structure will see John and our elite players supported by a greater network of specialist coaches both on and off tour," Vaughan said.
Former New Zealand captain and Indian coach John Wright has been appointed to a high performance coaching role.
"There are many areas in our high performance programme in which we can utilise John's expertise and we are working through these with him to determine his exact role," Vaughan said.
"John will be part of our drive to build player depth and to enhance the skills of our elite players."
Former first class Australian player Mark O'Neill has been named as specialist batting coach and former New Zealand Test bowler Dayle Hadlee has been retained as the specialist bowling coach.
The make-up of the selection panel for the national team is being considered and Vaughan said Bracewell will lose the right to veto panel decisions. The panel currently consists of former Test players Sir Richard Hadlee, Dion Nash, Glenn Turner and Bracewell.
"We have decided to change the philosophy under which the selection panel makes decisions. This change in philosophy will see the panel move to consensus decisions."