ESPN's Adrian Wojnarowski reported the news.
"We are so appreciative of how [President Masai Ujiri] and [general manager Bobby Webster] handled every aspect of this negotiation," agent Mark Bartelstein told ESPN. "Once again, they displayed how they look after their players in a first-class manner, especially someone like Kyle, who they recognize has such a legacy with the franchise."
With two-time NBA Finals MVP Kawhi Leonard now a Los Angeles Clipper, the Raps were motivated to retain Lowry, a five-time All-Star who's inarguably one of the Raptors' three most productive players in team history alongside Vince Carter and DeMar DeRozan.
Toronto won its first NBA title with Lowry running the point and averaging 14.2 points and a career-high 8.7 assists during the regular season.
The 33-year-old struggled from the field, shooting just 41.1 percent. He also hit 34.7 percent of his three-pointers, his second-lowest mark since 2010-11.
However, Lowry came through when Toronto needed him most. He averaged 16.2 points, 7.2 assists, 4.0 rebounds and 1.7 steals in the NBA Finals, including 26 points in the series-clinching Game 6. He also excelled against the 60-22 Milwaukee Bucks in the Eastern Conference Finals thanks to 19.2 points on 50.7 percent shooting.
Lowry will be 34 years old in March and is 13 years into his career, but he should still be productive in the short term.
Injuries likely played a part in his regular-season struggles, as he missed 17 games overall with various ailments and load management. He's been named an All-Star for the last five years for a reason, and he should provide value for the Raptors on both ends of the floor if his postseason is any indication.
Expect Fred VanVleet to also see extended minutes at point guard.
The Raptors' backup averaged 11.0 points and 4.8 assists in 27.5 minutes per regular-season game before turning it up a notch late in the playoffs.
From Game 4 of the Eastern Conference Finals until the end of the NBA Finals, VanVleet averaged 14.7 points on 51.1 percent shooting, hitting 52.6 percent of his three-pointers along the way. He scored 22 points in the NBA Finals-clinching Game 6.
VanVleet is signed through 2019-20, and with both in the fold, the Raptors should have one of the NBA's best point guard duos going into the regular season—at least until they decide how to move forward with the franchise.
Lowry wants to end his career in Toronto, per Wojnarowski, but this extension could also make him a more attractive trade piece if the team struggles out of the gate.