The deal runs through the 2025-26 season.
Washington acquired Gafford in a trade in March. He played 23 regular-season games for the Wizards, averaging 10.1 points, 5.6 rebounds and 1.8 blocks and shooting 68% from the field.
In five playoff games, he averaged 11.8 points and shot 22 of 26 from the field.
In 54 regular-season games last season for Chicago and Washington, Daniel Gafford averaged 7.0 points and 14.6 minutes.
"We're very excited to extend Daniel's contract and continue to see him develop within our system after his athleticism on both ends of the floor made such an immediate impact for us last season," Wizards general manager Tommy Sheppard said in a statement on Tuesday (Wednesday, Manila time). "We are confident that he has the character and drive to keep working hard to improve his overall game and become an even bigger part of what we are building with our team."
Gafford turned 23 this month. The Chicago Bulls drafted him in the second round out of Arkansas in 2019.
In 54 regular-season games last season for Chicago and Washington, he averaged 7.0 points and 14.6 minutes.
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