Powell, 53, who was appointed at the Jungle in May 2013, was already under contract until the end of next season, but his new deal will now take him to the end of 2022.
News of his two-year contact extension will end any lingering rumours of him returning to fill the vacancy at Leeds, where Richard Agar has been in interim charge since the sacking of Dave Furner in May.
"I've lived in Cas, I'm a Cas boy, I was born nearby and for me this is an awesome club and I haven't achieved what I'd like to achieve here yet," Powell said.
"I suppose there's been a far few rumours flying about recently, but I spoke to the chairman Ian Fulton about a new contract quite a while back.
"We spoke about where we are going to be taking the club, which was important for me as I'm pretty ambitious in terms of what I want the club to do and what I want to do myself.
"We had some good chats and I was offered an extension by Ian which I've accepted and I'm really excited about the challenge."
Powell turned the under-achieving Tigers into a regular top-four team and he was named Super League coach of the year in 2017 after guiding them to the League Leaders' Shield and a maiden Grand Final.
The former Featherstone boss rejected the chance to join the England coaching team under Wayne Bennett in order to concentrate on his club job and says he still has unfinished business at the Tigers.
"I'm just looking forward to helping the players hopefully to do something special," he added.
"I think we've got an awesome group of players and an awesome group of coaching staff and I know that everybody wants the club to grow.
"There's certain things as a club that we need to do better, as a team that we need to do better and as a coaching staff that we need to do better, and I want to help drive that to the next level."
Castleford director of rugby Jon Wells said: "It is not an exaggeration to say that Daryl has been the main catalyst for change here at the Tigers over the last seven years and I don't think there is a better coach or a coach more fitted to what we are doing here at the Tigers out there.
"I would like to place on record the hard work undertaken by our chairman during these last few months in getting this hugely important piece of business done."
