Today's announcement was widely expected after both parties admitted talks had been ongoing and were close to being finalised prior to the start of the Tri Nations.
The ARU's decision to stick with Deans instead of looking to appoint a new coach such as Super 15 winning Reds boss Ewen McKenzie means 2013 will be the second successive Lions tour to Australia to feature a Kiwi coach after Graham Henry led the Lions in 2001.
"I'm pleased to have gained the backing of the Board," said Deans, who names his 30-man World Cup squad in the early hours of tomorrow.
"A large number of players have re-committed to Australian Rugby this year and I'm pleased to be joining them.
"My priority remains, as it has always been, on the preparations both for the final Tri Nations Series Test against the All Blacks in Brisbane, and then for the Rugby World Cup that follows in New Zealand."
Deans took over from John Connolly in 2008 when he became the first non-Australian to lead the Wallabies having established himself as the most successful coach in the history of Super Rugby during his eight-year reign with the Crusaders.
His five titles with the Canterbury-based franchise saw him cross the Tasman with an impressive reputation but he has had to endure some tough times since switching allegiance. Four successive defeats in Tri Nations fixtures, a long-standing failure to beat New Zealand, defeat to Scotland at Murrayfield and a home loss to England in Sydney saw critics questioning his suitability for the job.
But even a shocking reverse to Samoa last month hasn't made the ARU hierarchy reconsider their assessment of Deans who has developed a side packed with young talent and widely-regarded as the most exciting to watch in the world.
"The Board is confident Robbie Deans remains the best man for the job, based on the seamless way he has reshaped the personnel and team culture of the Qantas Wallabies," said ARU chairman Peter McGrath.
"We are second in the IRB world rankings, up from five when Robbie took over, and we have a young team playing an exciting brand of Rugby and moving in the right direction."
And while Deans himself admits there is still plenty of room for improvement, most people would concede that the Wallabies are on the right track.
"The away record has certainly improved under Robbie and that was emphasised again on the weekend with a wonderful win over the Springboks despite the rigours of travel and a one week turnaround after playing the All Blacks in Auckland," added ARU chief executive John O'Neill.
"We are still working towards where we want to be in terms of overall winning percentages and the collection of major silverware.
"However, the win on the weekend keeps us in the hunt at this stage for the Tri Nations title this season and the game's ultimate prize will be decided in New Zealand over September-October.
"There is no doubt Robbie has earmarked and brought through a new generation of Wallabies stars and we have certainly not stood still over the three and a half years he has been in charge of the national team.
"I look forward to him making an even more lasting impression on Australian Rugby over the next two seasons."