Ausilio has had a key role to play in shaping a new-look squad at San Siro, with the likes of Nemanja Vidic, Pablo Daniel Osvaldo and Gary Medel arriving at the club in the close-season.
The 39-year-old had been expected to put pen to paper on a new deal with Inter and it was confirmed on Tuesday that he will remain in Milan until June 2017.
Ausilio told the club's official website: "I am very happy and proud.
"I thank president (Erik) Thohir for the faith he has shown in me. Our shared goal is to build an Inter side that can once again compete for trophies and restore the club to its rightful place in Italy and Europe."
Thohir welcomed Ausilio's decision to extend his stay at the club as he strives to make Inter a force once again.
"We are delighted that our sporting director has extended his contract," said Thohir.
"We have laid the foundations of a big project and we are working hard with a lot of energy to lay the groundwork for a successful Inter side."
Inter face Atalanta in Serie A at San Siro on Wednesday and coach Walter Mazzarri is eager to end a run of six games without a win against the Bergamo club.
He said at a press conference on Tuesday: "We have to prove we're good enough to break that tradition.
"Teams always find an extra gear when they're up against Inter. We're at the start of a new cycle, with a new set of players.
"You have to match your opponents on a physical and mental level. If we manage that, then we can let our quality shine through.
"I'd like to see the same approach tomorrow as we showed against Sassuolo [a 7-0 win on September 14], getting at them from the start instead of letting them get at us. We need to aim for consistency in all the games we play."
Inter were held to a 1-1 draw at Palermo at the weekend and will go in search of their second Serie A win of the season on Wednesday.