The Hornets announced Thursday that Lee, a 41-year-old American who won two NBA titles as an assistant coach, would stay with the team, which has gone 63-101 under his two campaigns in charge.
The 25-win improvement to finish 44-38 this season was a club record, the Hornets closing the campaign on a 28-10 run.
"I'm incredibly grateful for the opportunity to continue leading this team and building on what we've started," Lee said.
"I'm excited about the direction we're headed and our team's bright future... I'm proud of the culture we're establishing. We're just getting started. I'm looking forward to the work ahead."
The Hornets beat Miami in the play-in round but lost to Orlando for the eighth seed in the Eastern Conference.
"Charles has done an outstanding job establishing a foundation for who we want to be as a team," said Hornets president of basketball operations Jeff Peterson.
"He has built a team-first culture rooted in accountability, hard work and professionalism."
Lee was an NBA assistant coach for 10 years, including for 2021 NBA champion Milwaukee and 2024 NBA champion Boston, before taking charge in Charlotte.