Trinity were second from bottom in Super League when Chester took over – replacing Brian Smith – in March, 2016.
He steered them into the top-eight in his first season at the helm and they have finished fifth in Betfred Super League for the past two years as well as reaching the semi-finals of the Challenge Cup in his debut campaign.
The 40-year-old, who is from Wakefield and is also joint-coach of Scotland, said: “I am very happy.
“To get my deal sorted so quickly is great news for me and my family.
“We are very settled here, I am a Wakefield Trinity fan and a Wakefield lad and I am delighted to have agreed another three years.”
Chester played for Wakefield community club Stanley Rangers and turned professional with Halifax.
He moved to Wigan Warriors in 1999 and played in two losing Grand Finals before joining Hull in 2002.
After five seasons there – and featuring in the 2005 Cup final win over Leeds Rhinos – he crossed the city to spend the final two years of his playing career with neighbours Hull KR.
After a neck injury forced him to hang up his boosts he had a spell on Castleford Tigers’ backroom staff and then returned to Hull KR, taking over as head coach from Craig Sandercock in 2014.
He guided Rovers to Wembley the following year, but was sacked early in 2016.
Trinity chief executive Michael Carter described Chester’s new deal as “fantastic news for everybody associated with the club”.
He said: “We’ve been having a chat for probably six months now about tying Chris down for a further length of time.
“We spoke [on Monday] and negotiations to be honest didn’t take that long.
“It is absolutely fantastic Chris is now on board for at least another three years.”
Trinity have been in pre-season training since Monday last week, two days after Scotland completed their European Championships campaign with a 28-10 loss to France in Perpignan.
Chester said: “It [his time with Scotland] was an eye-opener, but a good experience.
“I enjoyed it, they were great lads to work with a great staff as well.”