In the wake of the announcement, AS looks at some of the key factors behind the two-time world champion's decision to extend his terms with the British outfit:
An improved pay packet
With the Woking-based team desperate to avoid seeing Alonso leave at the end of the 2017 season, they have done everything in their financial power to persuade the Spaniard to stay.
Alonso had absolutely no intention of remaining at McLaren if their unsuccessful partnership with Honda continued. During the three years of the alliance, things have not only not improved, but have got worse. A change of engine supplier was a deal-breaker: without it, he wouldn't have stayed.
Alonso is confident that the McLaren will adapt quickly to the new Renault engine and that wholesale changes to the car will not be needed, allowing the team to focus on improving its chassis and aerodynamics.
Racing in other competitions
Executive director Zak Brown has this week confirmed that Alonso will be allowed to compete in other events as long as it doesn't affect his Formula One commitments.
McLaren know the 36-year-old is after the motorsport 'triple crown' of Indianapolis 500, Le Mans and the Formula One world title, but are not prepared to let him sit out any races on the F1 calendar - something which did happen this year, when he missed the Monaco Grand Prix in May to take part in the Indy 500.