The Saints boss has impressed since arriving from Feyenoord last season.
The announcement was some coup for a Saints side undergoing a major reconstruction last summer.
Previous manager Mauricio Pochettino had jumped ship to Tottenham, while a series of first team players were making high profile and high transfer fee moves to other clubs in the Premier League.
Liverpool were Southampton's chief tormentors in this regard, they bought the Saints' top scorer Rickie Lambert, captain and creative lynchpin Adam Lallana, and defensive rock Dejan Lovren - who had only joined the club 12 months earlier.
Also leaving the club were prodigiously talented fullback Luke Shaw, who went to Manchester United, and the promising Calum Chambers, who moved to Arsenal.
Koeman arrived, with reports that Morgan Schneiderlin was also to depart, and steadied the ship immediately with assertive and confident meetings with the media, as well as astute signings, with his experience in the Eredivisie proving key.
Ryan Bertrand arrived from Chelsea, initially on loan, and has taken Shaw's place in the England side, Graziano Pelle came in and outscored Rickie Lambert's two Premier League seasons, Toby Alderweireld proved himself a superb defensive addition while Lovren toiled at Anfield, while Dusan Tadic was involved in more goals this season (14) than Lallana (10) despite the England international playing more matches. Fraser Forster, Sadio Mane and Shane Long also fulfilled varying successful roles during the campaign.
Though Southampton only moved up one position in the division, from 8th to 7th, the Saints moved a lot closer to the sides above them, both with their performances and their goal difference.
Koeman's side ended up four points behind fifth spot, compared to the twelve points the season before, and their goal difference of +21 was a vast improvement on the +8 in Pochettino's final season. It actually put them just behind fourth placed Manchester United in this regard, meaning they and the top four were way clear of the rest of the division.
Much of Southampton's good work came about through Koeman's tightening of the defence, to the extent that only champions Chelsea fared better at stopping the opposition from scoring, while there were emphatic performances at the other end of the pitch, with a 6-1 win over Aston Villa and an extraordinary 8-0 victory over Sunderland.
Moving forward, with Koeman in another summer of speculation about Southampton players, the Dutchman will want to keep the side together as much as possible, but also add extra goal threat - take away their two huge wins and the Saints struggled for goals at times. However, they already look to be addressing this by their reported signing of Malaga striker Juanmi according to Sky Sports, while Jay Rodriguez's return from injury will feel like a new arrival.
In short, Koeman's year in charge has shown Southampton fans one thing, with him at the helm they are only likely to improve.