"I have faith in his ability as a coach, I have faith in his ability to get better as he moves forward," said Shero.
Shero said in making the decision he assessed the coaching staff over the entire season, and not just based on the stunning end to their season.
The Eastern Conference regular season champs, the Penguins were swept in the conference final by Boston, while being outscored 12-2.
"I'm not sure anybody could have imagined our team being shut down the way it was offensively," Shero said.
Pittsburgh had been averaging over four goals per game through wins in the first two rounds over the New York Islanders and Ottawa.
Bylsma replaced Michel Therrien as coach in February 2009, and four months later was hoisting the Stanley Cup.
He has compiled a 201-93-25 regular season record, taking the Jack Adams Trophy in 2010-11 as coach of the year in the NHL. But since the Stanley Cup win, Pittsburgh has won just three of seven playoff series, winning 20 of 41 games.
Bylsma, criticized for his team's inability to make adjustments against the Bruins, expressed relief that his status was addressed so quickly.
The 42-year-old had been signed in 2011 to a three-year extension to run through 2013-14.
Shero said owners Mario Lemieux and Ron Burkle earlier were supportive of retaining Bylsma.
Shero announced that Bylsma's staff, which includes former player and head coach Tony Granato, have also been extended.
The Penguins have numerous free agents and other off-season questions to address as the salary cap in the NHL is reduced by roughly $6 million US.
Pittsburgh won 15 consecutive games during the regular season, but despite their success, Shero loaded up for a Stanley Cup run ahead of the trade deadline. He acquired veteran forwards Jarome Iginla, Brenden Morrow and Jussi Jokinen, and defenceman Douglas Murray.
All except Jokinen are unrestricted free agents this summer, as is effective two-way forward Pascal Dupuis.
The recent additions all had their struggles in the playoffs, particularly against Boston.
Shero was still coming to terms with the Boston loss. He pointed out that three of the four games were closely contested, with the exception of a 6-1 blowout in the second game.
"I think we all see there's no denying we lost that series in Game 2," Shero said. "It just got away from us, I can't explain Game 2."
As far as the longtime Penguins, star forward Evgeni Malkin and Norris Trophy finalist Kris Letang hit UFA status in mid-2014.
The Penguins general manager said his staff will be moving quickly to formulate a plan as to who to target for re-signing in the coming weeks.
There are also questions in net, as Marc-Andre Fleury was replaced in the playoffs by backup netminder Tomas Vokoun.
Shero said he believes Fleury can get back to the type of post-season performances he put forth in 2008 and 2009, while the veteran Vokoun is comfortable carrying the load or serving as backup.
"It's difficult to replace 40 wins a year from Marc-Andre Fleury, I can't replace that," said Shero.
Bylsma earlier this week also gave Fleury a vote of confidence.
Fleury and Vokoun will have a new goaltending coach next season. It was announced that Gilles Meloche will shift to another role within the organization.