The new agreement will see Letterman, 64, overtake his mentor Johnny Carson as the longest-running late-night host in US television history, with 32 years on air to the late comedian's 30.
Under the deal, CBS will take on some ownership of The Late Late Show, which been produced solely by Letterman's Worldwide Pants Incorporated since its debut in 2005.
The format has also been renewed until 2014 with Craig Ferguson as host and will move to a larger stage at CBS Television City in Los Angeles, according to Deadline.
"David Letterman is a late night legend with an iconic show and Craig Ferguson continues to evolve the genre in exciting and innovative ways," CBS Entertainment president Nina Tassler commented.
The details of Letterman's deal first emerged back in January in anticipation of the end of his contract this August.
The Late Show with David Letterman airs weeknights at 11.35/10.35c on CBS.
> David Letterman jokes about death threat in monologue - video
Watch a clip from David Letterman's first NBC Late Night show below: