Tanaka, 29, will earn $67 million between 2018 and '20.
MLB Network's Jon Morosi broke down the factors that contributed to Tanaka's decision:
During the Yankees' ascendant 2017 campaign, Tanaka went 13-12 with a 4.74 ERA, 1.24 WHIP and a career-high 194 strikeouts.
He was particularly strong over the season's final few months.
After the All-Star break, Tanaka went 6-4 with a 3.77 ERA, 91 strikeouts and 14 walks.
Tanaka also brought some of his best stuff in the postseason and allowed two earned runs and 10 hits over 20 innings in three October starts.
Now that the Japanese stud is locked up, the Yankees will enter 2018 with Tanaka, Luis Severino and Sonny Gray all under contract.
The big question moving forward is whether free agent CC Sabathia—who has been clear about his desire to return to the Bronx—will be back in the fold following a superlative showing in the postseason at 37 years old.