Key, 45, has been with the Faenza-based squad for the past five years, having joined from Sauber to lead their technical operations in September 2012.
Since then the highly-regarded Englishman has overseen the concept, design and manufacture of every Toro Rosso car, from the STR8 to this year’s STR12, with work now well underway on the 2018 STR13.
Toro Rosso team principal Franz Tost hailed Key’s contract extension, saying: “Formula 1 is a team sport, but one in which an individual can still make a difference.
“So far, in his time with us, James has proved that he can indeed make that difference, leading the technical side of the operation.
“Not only has he been adept at producing chassis-aero packages that are well regarded throughout the paddock, he has also shown the management skills necessary to get the most out of all the various departments that work together both here in Faenza and in Bicester.
“I am therefore delighted that James will be with us for the foreseeable future to continue this fruitful process.”
Key added that he was delighted to remain part of the Red Bull family.
“This is a team which I have great respect for and have thoroughly enjoyed working with for the past 5 years,” he said. “Now I look forwards to continuing our project into the future.
“STR is unique, facing the challenges of being spread over two countries and fulfilling the roles of both a team in its own right and an important part of the Red Bull driver programme: they are challenges that the team takes in its stride and, whilst doing so, continues to grow and improve year on year.
“Most importantly, the people I have had the pleasure to work with at STR are second to none: professional, ambitious and focussed, they have all worked incredibly hard to improve the team’s performance and will continue that hard work with the same dedication and optimism in the coming years too.
“I would like to thank Franz Tost and Red Bull for their continued support and confidence. We have more work to do, and I look forwards to taking the next steps with Toro Rosso towards our goals.”