That role had expanded to defence, backs and skills coach by the time Munster had won their second Heineken Cup title in 2008.
Commenting on the Australian's reappointment, Munster Rugby CEO Garrett Fitzgerald said: "We're obviously delighted that we have come to agreement with Tony for the immediate future.
"He has shown, in his short space of time as a head coach, that he has all the attributes to keep Munster Rugby to the forefront of the international club game, while at the same time ensuring players have the required skill sets for the international game.
"We have already enjoyed considerable success in the course of his short tenure and we believe that Munster Rugby can only continue to prosper under his direction."
As he put the final touches to plans for a two-day squad get-together, he said: "I'm very pleased to be remaining on here for the next number of seasons.
"It's been a privilege to be involved with this group of players and the management and officials here in Munster.
"I'm really looking forward to the immediate future, with crucial Magners League and Heineken Cup games in the offing, but I'm also delighted, both personally and professionally, to be remaining with Munster in the short term."
McGahan has organised a two-day camp for his squad in Tipperary this week and tomorrow the players will be introduced to Munster's newest arrival, Wian du Preez, who has joined the province on a three-month contract until the end of January.
The South African prop comes in to shore up the loosehead position, although the news on one of the players he is covering for, Marcus Horan, is good in that he has resumed light training after a successful medical procedure.