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O’Neil has won four, drawn four and lost four of his 12 games in charge to move the Cherries up to 14th in the Premier League table, three points above the relegation zone.
Bournemouth chief executive Neill Blake said: “Gary did an excellent job on an interim basis and the board are delighted to make his position as head coach permanent.
“We have been impressed with the way he has conducted himself from the moment he joined the club and feel he has earned this opportunity to continue to take the team and the club forward.
“Gary has worked tirelessly and diligently on the training pitch and the players have responded by producing some excellent performances and results.
“It was evident from the reception he received from our supporters following the Premier League win against Everton that they have also appreciated his efforts and we are all looking forward to continuing our working relationship with him.”