This off-season, the Twins have brought in Ervin Santana - a then-record five-year, $55million deal earlier in December - but Hughes' deal is worth $58m over the same period.
The 28-year-old enjoyed a positive start to life in Minnesota after six fruitful years with the New York Yankees, with who he won a World Series and was also crowned an All-Star in 2010.
Hughes' first season as a Twin saw him finish with a 16-10 win-loss record - his best figures since his All-Star year (18-8).
The performance came off a horror 2013 campaign in the Bronx (4-14), which saw him depart Yankee Stadium.
Twins general manager Terry Ryan said Hughes was in peak form.
"We've brought Phil over here after the 2013 season and everything seemed to click for both parties so that's the reason for this extension," Ryan said.
"He did his part and now we're doing our part. Everything seems to be in order and Phil is in the prime of his career."
Ryan said Hughes was not tempted by the thought of securing big dollars via free agency.
"I think everybody would acknowledge the closer you get to free agency, the tougher it is for the parties to get together on a reasonable deal," Ryan said.
"But Phil was comfortable here. We were comfortable with him. He's been an ideal fit for us."
The Twins were last in the post-season in 2010, when they were bundled out in the American League Division Series by Hughes' Yankees.
In fact, Hughes was on the mound when Minnesota were last involved in October - delivering seven innings' work in the Yankees' series-sealing 6-1 win in game three.
Hughes said he sees the Twins as a long-term club for his career, and believes in the direction the club is headed - despite finishing bottom of their American League Central division in three of the past four seasons.
"From what I saw last year, we have the makings to be a good club," Hughes said, of the Twins' 70-92 record in 2014.
"I didn't want it to be where I came in for three years, kind of saw this team get back on the right track and then said, 'Thanks for everything. Thanks for having faith in me but see you later.'
"I wanted to be part of this for years to come, and I believe in the process and the direction that this team is going. I'm just very excited that I know I will be a part of that change."