Bailey received a $4 million signing bonus and $7.5 million of the $22.5 million deal is guaranteed.
Bailey, who turns 26 on Sunday, was set to be a restricted free agent. The deal runs through 2020.
The Cowboys were likely to use the second-round tender on Bailey worth $2.124 million before striking the long-term deal.
Signed as an undrafted free agent in 2011, Bailey has made 88 of 98 field goal attempts in his three seasons, missing just four kicks in the last two seasons. He made 28 of 30 tries in 2013, including six of seven from 50 yards or more. In his first two seasons Bailey made 5-of-9 attempts from 50 yards or more. He also had 57 touchbacks.
Bailey has kicked a franchise-record eight game-winning field goals since joining the Cowboys.
The only other time the Cowboys put a serious investment into a kicker came in 2006 when they signed Mike Vanderjagt to a three-year, $5.4 million deal that included a $2.5 million signing bonus. Vanderjagt was cut that season after poor form.
With 11 more made attempts, Bailey would qualify for the all-time percentage leader. Vanderjagt is currently the most active kicker in NFL history, converting 86.5 percent of his kicks.