"Over the past 12 months we have made significant investments in this team, all keenly focused on assembling the right pieces to compete this year and in the future," Trail Blazers owner Paul Allen said in a statement.
"We've done that by adding Marcus (Camby), Wesley (Matthews) and most recently, Gerald (Wallace) and now, I'm glad that after productive discussions, Nate is now committed to be our coach for two more years."
Under McMillan, who on Tuesday agreed to a two-year extension, the Trail Blazers have overcome a rash of injuries to become playoff threats.
They have won four in a row, including victories over Orlando and the struggling Miami Heat.
"With his NBA and USA Basketball track record, Nate has established himself as one of the premier minds in the game of basketball," said Trail Blazers General Manager Rich Cho.
"Getting his contract extended was a top priority for the franchise and me."
McMillan, 46, is 447-422 overall in 11 NBA seasons coaching at Portland and Seattle.
(Reporting by Gene Cherry in Salvo, North Carolina, Editing by Steve Keating)