The new agreement will come into effect at the start of Chelsea's centenary season in 2005-06 and will supersede the last two years on his existing deal.
"I am delighted to be signing this new contract," Mourinho told the club's website. "My heart is with Chelsea and the fantastic group of players I have. They have done a great job this season.
"But the vision of the owner and the board for the future of Chelsea is also one I want to be part of. I am totally behind this project and their support in achieving it means Chelsea is the place where I will be happiest in my work.
"I cannot imagine another club or situation where I would be happier."
News of Mourinho's deal came the day after Chelsea were beaten by Liverpool in the Champions League semi-finals.
Chelsea clinched the Premier League title, their first top-flight championship for 50 years, by winning 2-0 at Bolton Wanderers last Saturday.
They also won the League Cup in February when they beat Liverpool in the final at Cardiff's Millennium Stadium.
KENYON DELIGHT
Chief executive Peter Kenyon was delighted that Mourinho had agreed the terms of his new contract.
"This is great news for everybody concerned," said Kenyon. "Both the club and Jose share a long-term vision for the future, that was clear from the moment we first met.
"We talked then about a 10-year plan for Chelsea and Jose wanted to be an integral part of building that. The outstanding success of the team this season is a great platform for that building process.
"As soon as the Carling (League) Cup was won talks over a new deal began as it was apparent to all sides that a longer commitment was the way forward.
"This deal demonstrates Jose's commitment to Chelsea and also our certainty that he is the best manager to take the club into a new, exciting and successful era."
Portuguese Mourinho said his new deal was also important to his family.
"For me, it is good to have this five-year contract in family terms because now we know that any doubts our lives will be in London and in Chelsea (are over)...which is important for my kids," said the 42-year-old.
"When I have a stable and good family situation it is even better for my professional situation."
Mourinho won a treble of UEFA Cup and the domestic league and cup in his first full season in charge of Porto in 2003.
He picked up a second successive league title plus the Champions League with Porto before taking over at Chelsea in June 2004 after the sacking of Italian Claudio Ranieri.
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