O'Shea, who has overseen the club's most successful period in the professional era, is joined in extending his stay by head coach John Kingston and skills coach Colin Osborne.
"Every day I go into the club I meet a group of coaches, players and support staff that wants to be the best they can be and wants to bring success to a club who belong at the top of the game," said O'Shea, who saw backs coach Mark Mapletoft and defence coach Tony Diprose extend their contracts last year.
"I am very privileged to be asked to continue as director of rugby at Harlequins and would like to thank the club's owners and the Board for this opportunity.
"We are ambitious to ensure that what we are building here is a lasting legacy, that we play rugby in a style that our supporters enjoy and is true to the tradition of this club, a club that will celebrate its 150th anniversary in 2016."
O'Shea took charge at Harlequins in 2009 and has since led the club to a trio of senior titles, as well as a second team A league crown. In addition to claiming the Amlin Challenge Cup in Cardiff with a stunning late win over Stade Francais three seasons ago, Harlequins claimed the Aviva Premiership title in 2012 and the LV= Cup in May of this year.
Quins reached the quarter finals of the Heineken Cup last season, topping Pool 3 with six wins from six before losing at home to Munster in the final eight. They have started this season's tournament in disappointing fashion, however, after slipping to a surprise defeat to the Scarlets in South West London and then suffering a second loss at last term's beaten finalists, ASM Clermont Auvergne.
They face another French giant, Racing Metro, in the December double header, starting with the away leg at the Stade de la Beaujore two weeks on Saturday, with the home tie coming the following Sunday in Round 4.