The 42-year-old was promoted from U17 coach to the top job in December on a six month deal but was expected to be replaced by a bigger name in the summer.
However, he has steadied the ship at the club who are back up to fourth in the Bundesliga table and been rewarded with a two-year deal despite the likes of Stefan Effenberg, Rafael Benitez and Roberto Di Matteo having all been linked with the job.
"Jens took over the team in a very difficult situation last December and despite many people resisting his appointment, he has brought Schalke back on track," said the club's general manager Horst Heldt.
"We are convinced of his abilities because the team has improved in recent months despite some absentees.
"Jens Keller offers a coherent concept, and not just the players, but all decision makers at the club have bought into his work and conviction."
Keller replaced Huub Stevens in the winter and finally led the team up the table despite a bumpy start under his direction.