The contract terms, which were confirmed by The Associated Press, also include bonuses of $500,000 per year if the Yankees are able to win the World Series.
Girardi's previous deal with the Yankees was for three years and $7.8 million. General manager Brian Cashman had said that re-signing Girardi was the team's "first order of business."
"I think I picked the right manager when we started the interview process three years ago to lead this franchise," Cashman said. "We're proud that we have at least one world championship to show for that in his first three years on the job."
Girardi piloted the Yankees to 95 regular-season victories and a sweep of the Twins in the American League Division Series before his team ran out of gas in a six-game AL Championship Series against the Rangers, coming up short in their efforts to secure back-to-back titles.
There had been some speculation that Girardi might pursue managerial openings elsewhere, with one attractive landing spot being the Cubs, for whom he played and a move that would represent a homecoming for the Illinois product.
But the Cubs offered the job to Mike Quade, and Girardi said he had never allowed himself to seriously entertain the idea of going to Chicago.
"We thought we were going to be here," Girardi said. "I thought the Yankees would want me to come back. That was what we talked about. As I told my wife and everyone involved, I need to concentrate on what's going on here."
In his three seasons at the helm, Girardi has managed New York to a 287-199 record. Although he expressed bitter disappointment at this year's ALCS exit, Girardi said he was looking forward to returning in 2011.
"I think I've learned a lot," Girardi said. "Being in New York is kind of a crash course. You get to experience a lot in a short period of time."
There will be more on the horizon. Girardi's return means he will likely be the one who needs to handle the thorny issue of moving Derek Jeter from shortstop or the top of the lineup, perhaps as soon as this year.
"I think you have to watch on the level that he plays at," Girardi said. "That's the fair thing. I don't think you rush to any judgment and assume that because he's , it's going to be this or that."
Succeeding Joe Torre for the 2008 season, Girardi's three years in the manager's chair yielded two playoff appearances and one World Series title. He joined Ralph Houk and Billy Martin as the only men to play for the Yankees and manage them to a championship.
This may have been Girardi's most difficult year. He endured his fair share of criticism late, as the Yankees' grip on first place over the Rays slipped and the team was left with the AL Wild Card, eliminated from division contention on the last day of the season.
During the team's first losing September since 2000, as New York lost 17 of its last 26 games, Girardi's lineup changes and bullpen maneuvers were heavily called into question by fans and the media.
Girardi bristled at times defending his decisions, but the Yankees also benefited from some of Girardi's sharp spring calls, like the ones to bat AL MVP candidate Robinson Cano fifth and use 18-game winner Phil Hughes as a fifth starter.
"I think anytime you win, everything seems to be right, and anytime you don't win, there's going to be people that say, 'Well, this is the reason why,'" Girardi said.
"I feel like obviously I had a better relationship with my players after I had some time with them, because of the experiences that we went through. As far as [regressing], I thought I was pretty much the same person, but we did not win this year. Whenever that happens, it seems to be a different tone."
Now that Girardi's new deal is in place, Cashman will move on to addressing the coaching staff. The GM already decided not to have pitching coach Dave Eiland back for 2011, and said he doesn't expect a decision to be made quickly.
The Yankees have several internal candidates for that opening, which include Triple-A pitching coach Scott Aldred and bullpen coach Mike Harkey. Orioles pitching coach Rick Kranitz could also receive consideration, and Leo Mazzone also threw his name into the ring this week.
"We want to get it done as quickly as possible, but we want to make sure we cover all of our bases and want to make sure we interview as many people as we need to before we make a decision," Girardi said.
The other members of Girardi's coaching staff -- first-base coach Mick Kelleher, Harkey, hitting coach Kevin Long, bench coach Tony Pena, and third-base coach Rob Thomson -- are expected to return for 2011.
In the meantime, Girardi is home, taking in the World Series like the rest of the country. He said he is as surprised as anyone at how the Rangers' fortunes have reversed through the first two games.
"You think about how Cliff Lee pitched against us, and you say to yourself, 'Well, he didn't pitch that way against us,'" Girardi said. "Those are the things that you think about.
"We didn't necessarily swing the bats particularly well with runners in scoring position. That's no secret. We didn't swing the bats well and San Francisco has."