Dlamini took over from Jozef Vukusic in February and managed to lead the team to Absa Premiership survival after a poor first half of the season.
Usuthu only lost one match in the bio-bubble after the season restarted, drawing four and securing one victory to make sure they saved their status.
"We would like to thank Dlamini for the great job he has done, and it is with pleasure that we announce him as our head coach for the next three years," general manager Lunga Sokhela said at his unveiling.
"It was not hard to announce Dlamini, he knows and understands the club's culture. If you look at clubs all over the world like Real Madrid, they have Zinedine Zidane. And there is Mikel Arteta at Arsenal."
Usuthu are still looking for an assistant coach after confirming the club has now parted ways with Moeneeb Josephs, who was only given a two-month extension on his original contract.
"I think as well, if you look globally there is a new phenomenon that's coming to coaches and how clubs decide on coaches now," Sokhela said on the radio earlier this week.
"You see a lot of bigger clubs now bringing their former players that know the culture of the club to be coaches.
"I think it's so important these days to have a coach and club that have strong chemistry, that is extremely important, and it's seemingly working in football now.
"Clearly there's something that is happening in world football regarding the bond between the coach, the club and the players.
"It's no longer good enough anymore to look just at the CV of the coach and all the badges, you've got to look for someone who will be understood by the players, understands the club and takes the club in a certain direction."