Wilson joined Wales' Capital Region ahead of the 2015-16 season, penning a three-year deal, and guided his side to seventh in the Guinness PRO12 - winning 10 of 14 league matches in the second-half of the campaign.
Following that improvement and in a commitment to his long-term plan at BT Sport Cardiff Arms Park, it was agreed at the beginning of the year to extend his current deal by another season.
Cardiff Blues chief executive Richard Holland said: "We're obviously delighted that Danny has agreed to extend his deal with the region.
"The progress under Danny's guidance last season was clear for all to see with a brilliant run and a number of Welsh derby wins at the end of the year.
"We are committed to the long-term vision he has to bring success back to Wales' Capital Region and look forward to the season ahead."
Wilson joined Cardiff Blues after securing an early release from his contract as forwards coach at Bristol Rugby.
He previously enjoyed stints at both Newport Gwent Dragons and the Scarlets, and guided Wales Under-20s to the final of the 2013 Junior World Championship.
Wilson was pleased with the progress made by the Blues last season and is now looking forward to the 2016-17 campaign.
He added: "I'm delighted to extend my stay at Cardiff Blues and extremely motivated by both the exciting squad we have assembled and the organisation's goals which we are working towards.
"There is a real collective approach from the management and senior players driving Cardiff Blues forward.
"The potential for success at BT Sport Cardiff Arms Park is not just realistic but something I am incredibly enthusiastic about."
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