The two sides had been reported as close to terms last week.
"Jimmy is one of our most valuable players who is entering the prime of his career. He gives a chance to win every night," general manager Ken Holland said in a statement released through the club's Twitter feed, which also contained a picture of the 29-year-old signing on the dotted line.
"He's entering the prime of his career and over the last four years has gained a tremendous amount of regular season and post-season experience."
Howard was in the final season of a two-year, $4.5 million US deal. It had been reported last week that the new pact would be in the $30-32 million range.
Detroit (20-15-7) is currently in eighth place by virtue of having played one less game than Columbus. Both clubs have 47 points.
Howard is coming off a 22-save shutout against Nashville. For the season he has three shutouts, a 17-12-6 record, .920 save percentage and 2.31 goals-against average.
"He's developed into a top-tier NHL goaltender and is a very important part of our team moving forward," Holland said. "Jimmy is one of our leaders and we look forward to watching him elevate his game to the next level in a Red Wings' sweater."
The Syracuse, N.Y., native took over the No. 1 job from Chris Osgood in the 2009-10 season, earning recognition as a Calder Trophy finalist.
Howard's 2.38 GAA over the last four seasons ranks him 11th in the league in that span. What he has yet to do is lead the Red Wings on an extended post-season run. He's 13-15 with a 2.63 GAA in the playoffs, and Detroit hasn't made it past the second round since 2009.
The Wings play in Calgary on Wednesday and in Vancouver on Saturday on Hockey Night in Canada (CBC, CBCSports.ca, 10 p.m. ET).