The Exiles say the deal confirms their long-term commitment to play in Oxfordshire as they push for promotion back to the Aviva Premiership.
It also means Welsh will not move to the Witney Community Stadium, despite having planning permission for the site.
“The Kassam Stadium is an excellent facility with a great pitch and very popular with the players,” said Exiles chairman Bleddyn Phillips.
“We are delighted to be in a position to be able to confirm the club’s commitment to Oxfordshire with the signing of this agreement.
“With the team having secured its place in the Championship semi-finals these are exciting times for both the club and for Oxfordshire generally, in the realm of rugby.
“The club is committed to establishing itself as a Premiership club and this is a very important step in that direction.”
Welsh moved to the Kassam Stadium after being promoted to the Premiership in 2012, but following relegation last year, they considered playing elsewhere.
Phillips stated at the time that it would be “financially imprudent” to stay at the Kassam Stadium unless their rent was reduced.
After plenty of negotiations, the Exiles signed a deal for the 2013-14 season, but have seen low crowds in the Greene King IPA Championship, with 1,821 their biggest gate.
Welsh say the deal will boost their community programme, which reaches more than 3,000 young people in Oxfordshire schools and clubs.
However, despite having floated the idea of an Oxfordshire training base, Phillips said Welsh’s squad “will continue to work and train” at Old Deer Park next season.
Kassam Stadium general manager Michael Doyle said: “This is very exciting for people in Oxfordshire.
“The last two seasons have shown that rugby and football can co-exist very happily and the investments that both Welsh and Oxford United have made have meant we have a playing surface even better than many single sport facilities.”