The team made the announcement Monday. Hammond previously had one year left on a three-year extension.
Hammond was hired by the Bucks in 2008. He won the NBA Executive of the Year Award for 2009-10 following Milwaukee's 46-36 season.
Under Hammond and first-year coach Jason Kidd, the Bucks saw a dramatic turnaround last season. One year after a franchise-worst 67-loss season, the Bucks finished 41-41 and reached the playoffs, where they lost in the first round to Chicago.
Hammond has more than 30 years of coaching and administrative appearance, including seven seasons with the Detroit Pistons that included the 2004 NBA Championship.