Standard Arbitrary Lagrangian–Eulerian (ALE) methods for the simulation of fluid–structure interaction (FSI) problems fail due to excessive mesh deformations when the structural displacement is large. We propose a method that successfully deals with this problem, keeping the same mesh connectivity while enforcing mesh alignment with the structure. The proposed Extended ALE Method relies on a variational mesh optimization technique, where mesh alignment with the structure is achieved via a constraint. This gives rise to a constrained optimization problem for mesh optimization, which is solved whenever the mesh quality deteriorates. The performance of the proposed Extended ALE Method is demonstrated on a series of numerical examples involving 2D FSI problems with large displacements. Two-way coupling between the fluid and structure is considered in all the examples. The FSI problems are solved using either a Dirichlet–Neumann algorithm, or a Robin–Neumann algorithm. The Dirichlet–Neumann algorithm is enhanced by an adaptive relaxation procedure based on Aitken's acceleration. We show that the proposed method has excellent performance in problems with large displacements, and that it agrees well with a standard ALE method in problems with mild displacement.