The 48-year-old's previous deal with the Irish Rugby Football Union was set to expire after next year's Six Nations, possibly freeing him to lead the Lions on their 2009 tour of South Africa.
Wednesday's news casts doubt on whether he will remain the number one candidate for the role, with Lions bosses reportedly keen on a full-time appointment.
O'Sullivan said of his new contract: "I am deeply honoured that the appointments committee of the IRFU should see fit to give me a further extension in my role as national coach at this time.
"I see it as a timely vote of confidence in me and my coaching staff at a critical point when we are about to embark on our World Cup challenge.
"Another four years at the helm further helps me to plan a strategy for the national squad into the long-term future and that is vital if we are to achieve all our shared ambitions for Irish rugby."
IRFU chief executive Philip Browne added: "We are delighted to come to agreement with Eddie O'Sullivan that he should continue as national coach for a further four years period.
"As in pre World Cup 2003, we believe today's announcement is a timely indication of our faith and confidence in the national coach and his playing squad as they are in final preparations for the upcoming World Cup in France.
"We wish him, his Management team and playing squad every success."
Following his initial appointment in November 2001 up until the 2004 Six Nations, O'Sullivan signed a contract extension in September 2003 for a four-year period to include this year's World Cup and the 2008 Six Nations.
His new deal will take in both the 2011 World Cup and 2012 Six Nations.