The decorated manager, whose previous contract was due to expire at the end of June, has been at Real since 2021, having previously managed the club from 2013 to 2015.
He has won one league title with Real, along with two Champions League trophies and two Club World Cups.
"My contract was up on June 30. The club has decided to do it now because they're happy with our work," Ancelotti told reporters on Tuesday ahead of a home game against Mallorca.
"I don't know if it will be my last spell as a coach. I don't know what will happen once I finish here. I might still be here in 2026, depending on how successful I am.
"I'd like to be Madrid coach until 2026, and hopefully I can continue to be here in 2027 and 2028 because I want to stay here."
Prior to signing the extension, Ancelotti had been linked with a move to Brazil's national team, with ex-Brazilian FA (CBF) president Ednaldo Rodrigues having said he was the preferred candidate.
But Ancelotti said staying at Real had always been his priority.
"I was proud (to be considered), but it was all dependent on my situation with Real Madrid and that it was all clear," he added.
"Ednaldo is not the president right now and everything has gone the way I wanted because I'm able to stay here. Thinking about being the Brazil coach was exciting, but I don't know if they will want me in 2026.
"I don't know if they will be happy with this decision."
Real lead LaLiga on goal difference ahead of Girona after 18 games.
