Full terms of the deal aren't yet known.
"Three years ago when we selected Davey to be our manager, he made a promise to our fans that he would bring a world championship back to Washington, D.C.," Nationals managing principal owner Mark Lerner said. "There was never any doubt in my mind that he would make that dream a reality. Davey's determination and unwavering support of his players is admirable. We are so fortunate to have him leading our clubhouse each and every day."
Martinez led the Nationals to their first World Series title in franchise history last season.
The 56-year-old manager owns a 198-183 record since joining Washington prior to the 2018 campaign.