The deal could be worth more than $55 million for eight years. It includes $6.5 million in base pay, a "talent fee" and a $400,000 completion bonus for each season.
An contract agreement with Saban, 62, was reached nearly seven months ago but finally approved by the Alabama system trustees' compensation committee. He is the highest-paid coach in college football.
Saban's previous contract worth worth approximately $5.6 million annually.
"He is the best coach in the country and he's brought Alabama back to the pinnacle of college football," Alabama athletic director Bill Battle said in a statement. "His success on the field is obviously second to none, but Coach Saban's influence on academics and all the other areas of our athletic programs are equally impressive to me."
Saban has coached the Crimson Tide to three national titles in his seven seasons at the school.
"We are honored by the commitment the University of Alabama has made to us with this new contract," Saban said. "It is certainly a mutual agreement in terms of our commitment to the University of Alabama. We will continue to work hard to keep our football program among the nation's elite. My passion has always been to develop young men to their full potential as student-athletes.
"We've had great success in that area at Alabama and I'm appreciative of all the support and the resources we receive from the administration in order to make that happen."
Trustees also approved a contract for offensive coordinator Lane Kiffin that has a $680,000 salary for the next two years and $714,000 the following year.
Alabama defensive coordinator Kirby Smart received a one-year extension through 2017. His three-year contract, signed in 2013, is for $3.85 million.