The 56-year-old Spaniard has signed a new initial three-year deal after opting not to exercise the release clause in the contract he signed in March to protect him in the event of relegation, and will have day-to-day responsibility for all football-related matters.
Benitez said: "I am extremely pleased to be staying at Newcastle United. The love I could feel from the fans was a big influence for me in my decision to stay, as was my relationship with [managing director] Lee Charnley and all the staff.
"This is a huge club and I wanted to be part of the great future I can see for Newcastle United."
Hopes had been high of keeping Benitez on Tyneside ever since he held positive talks with Charnley in the immediate aftermath of relegation and then spoke to owner Mike Ashley.
Both sides were finally granted their wish on Wednesday afternoon when the former Liverpool and Real Madrid boss formally agreed to stay.
A statement said: "Newcastle United are delighted to confirm that Rafa Benitez will remain as Newcastle United manager, after signing a new initial three-year contract.
"On Wednesday afternoon, the Spaniard put pen to paper on the deal which will keep him on Tyneside until at least the summer of 2019.
"Benitez will have day-to-day responsibility for all football-related matters at the club."
Benitez had taken on a 10-game rescue mission when he replaced Steve McClaren, but although he was unable to pull it off as the Magpies finished a disastrous season on just 37 points, they did so with a six-match unbeaten run culminating in a 5-1 demolition of Tottenham.
That was enough to convince the embittered Toon Army that Benitez was the right man for the job and with Charnley having pulled off something of a coup to get him in the first place, he was handed the equalling taxing challenge of securing his services for at least one season in the Sky Bet Championship.
Charnley said: "When we brought Rafa to the club in March, we knew he was a phenomenal manager and everything we have seen from him since has only served to reinforce that.
"We are therefore delighted to have secured his services for the next three years and I believe with Rafa as manager, it gives us the best possible chance of returning to the Premier League at the first time of asking and delivering success for this football club beyond that.
"It is clear that Rafa has connected deeply with the club's supporters and we do not underestimate the role they have played in his decision to stay. He has captured the hearts and minds not just of the fans, but of everyone who has had the pleasure of working with him at the club thus far.
"As a world-class manager, we had no doubt in our minds as to the importance of retaining him at Newcastle United."
For all there was a willingness on both parts for a deal to be struck, there were serious discussions to be had with the manager - predecessors Alan Pardew and McClaren had the title head coach - seeking assurances on the degree to which he would have control of player recruitment and disposal and the finance available to him.
The club too, while needing to alter the model it has adopted in recent years, also needed to be certain Benitez's demands were workable after suffering a huge drop in revenue as a consequence of relegation in a season which sees the new bumper broadcast deal come into effect.