The announcement was made after the Demons confirmed their third top-four finish in as many seasons, including their drought-breaking 2021 premiership.
Goodwin, 46, was contracted to Melbourne until the end of next season before this latest deal, signing his previous extension in May last year.
"It's an absolute privilege to coach this club," Goodwin said in a statement.
"I've said it from the time I walked through the door; we are an incredibly proud club, with such great history, and I feel blessed to be able to do this job.
"It takes so many great people to make a football club, from players to staff, to CEO and board, to members and supporters.
"It's everyone, connected and aligned, and I'm just lucky enough to be steering the ship."
Goodwin took over as senior coach in 2017 in a succession plan with Paul Roos.
Two years ago he coached the Demons to their first premiership in 57 years.
"Simon is a passionate, dedicated Melbourne person, and we couldn't be more pleased to have him leading our AFL team for the next three years," said Melbourne chief executive Gary Pert.
"His care and commitment, to not only his players and coaches but the broader club, is unwavering.
"Since arriving in 2014, Simon has developed incredibly strong relationships and fostered a culture our people feel proud to be part of. He truly embodies the Demon Spirit.
"Simon has taken our club to great heights, but it is his focus on continual improvement that is most impressive. He is steadfast in his pursuit of delivering our members and supporters more success."
Goodwin regularly has been the subject of allegations about off-field behaviour made by former club president Glen Bartlett.
Bartlett suddenly stepped down from his role at Melbourne in April 2021 and was replaced by Kate Roffey. He has been at war with the Demons since.
Goodwin brushed aside the latest claims from the Bartlett camp, made earlier this month, as "absolute rubbish", describing the matter as irrelevant.
Goodwin joined the Demons as an assistant coach in 2014.
He was a two-time premiership player at Adelaide and captained the club, before starting his coaching career as an assistant at Essendon.
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