The 41-year-old has been appointed after guiding Glasgow Rangers to the Scottish Premiership title last season, finishing the campaign undefeated in the league.
He joined Rangers in 2018 following a spell as an Academy Coach at Liverpool.
In a statement, Villa CEO Christian Purslow said: “The Board of Aston Villa are delighted to appoint Steven as our new Head Coach.
"Since moving into coaching after his illustrious playing career, Steven began by managing and developing top young players in the Liverpool FC Academy which is experience we value highly at Aston Villa.
"He then took the brave decision to test himself in the intense and high pressured environment of the Scottish Old Firm. His subsequent achievement in winning the Premiership title with Glasgow Rangers really caught our eye as did his experience in Europe."
Mr Purslow added: "It has been very clear in our discussions with him that Steven’s coaching ambitions, philosophy and values entirely match those of Aston Villa.
"We are excited he has agreed to lead us in the next phase of our ambitious plans as we look to build on the progress made since Nassef Sawiris and Wes Edens took over the club in 2018."
Reacting to his appointment, Steven Gerrard said: “Aston Villa is a club with a rich history and tradition in English football and I am immensely proud to become its new Head Coach.
"In my conversations with Nassef, Wes and the rest of the Board, it was apparent how ambitious their plans are for the club and I am looking forward to helping them achieve their aims.
"I would like to express my sincere gratitude to everybody associated with Glasgow Rangers for giving me the opportunity to manage such an iconic football club. Helping them secure a record-breaking 55th league title will always hold a special place in my heart. I would like to wish the players, staff and supporters the very best for the future."
How have fans reacted to Gerrard's appointment?
Young Charlie Wood said he has been a fan for six years now - having not been able to support any other club...because his dad wouldn't let him.
He claims to have predicted Gerrard's new position: "When they announced that Dean Smith was gone, Steven Gerrard was the one I thought was gonna take over, so yeah, I wasn't that skeptical about it - but yeah, good manager."
Charlie's mum, Helen Wood, has been a Villa fan for more than 30 years, and said she's looking forward to seeing what Gerrard does to help the younger members of the squad: "I'm really excited about that, I wanted somebody that was young, ambitious and that can drive the team forward.
"I also like the fact that he likes to develop young players, we've got a lot of young players at Villa - we had five on the bench in our last game. So it would be really good to see what he can do with those players."
Gerrard's appointment comes following the sacking of boyhood Villa fan Dean Smith, the first in his managerial career.
Smith was let go after a run of five league defeats in a row.
In a statement released earlier this week, Christian Purslow said: "This year we have not seen the continuous improvement in results, performances and league position which we have all been looking for.
"For this reason we have decided to make a change now to allow time for a new head coach to make an impact."
Smith joined Villa in October 2018 and led the club back to the Premier League in his first season in charge.
The following season, he kept them in the top flight while also leading the team out at the Carabao Cup Final at Wembley, losing 2-1 to Manchester City.
He was sacked after Villa suffered a 1-0 defeat against Southampton on Friday.