The much-respected former Great Britain international was only part way through a five-year deal that he signed back in 2014 but has now extended his stay further at Wheldon Road.
Powell – who many people felt would eventually return back to Leeds Rhinos – is now contracted until the end of 2020.
In his three full campaigns since leaving Featherstone Rovers to replace Ian Millward, he has taken Castleford to finishes of fourth – their best in the summer era – fifth and fifth plus a Wembley appearance in the 2014 Challenge Cup final.
The West Yorkshire club has never won the championship and have not enjoyed major silverware since the 1994 Regal Trophy but are widely recognised now as being one of the most attractive sides in Super League.
Powell, 51, said: “Although I signed a five-year contract a few years ago there was a get-out clause at the end of next season which both the club and myself wanted to get rid of.
“I believe we are on the cusp of a very special period at Castleford and I want to be right at the heart of achieving something special with the group of players we have at the club at the moment.
“Right from the top of the club starting with (chairman) Ian Fulton working all the way through the management, coaching staff and down to the players we have special people working hard to achieve great times in Super League.
“Although some of our mentality has to change I believe we have everything in place to consistently challenge towards the top end.”
Bradford Bulls have signed Gold Coast Titans back-row Lachlan Burr on a one-year deal.
The former Canterbury Bulldogs forward, 24, links up once more with Bradford coach Rohan Smith, who he worked with at Titans.