Cleary, who signed with Detroit for the 2005-06 season after a training camp tryout, will reportedly earn $1.325 million over the life of the deal.
"Dan's a gritty player and we value what he brings to the team," said Holland. "I'm glad he will be in a Red Wings jersey for the next two seasons."
A former first-round draft pick, Cleary scored 15 points in 77 games with Detroit last season. He has totalled 127 points in 406 NHL games.
Before coming to the Red Wings, Cleary played for the Chicago, Edmonton and Phoenix.