Former Chelsea star takes over as Aston Villa boss
The relegated Premier League club officially announced his appointment on Friday, confirming the news that BBC Sport first broke on Thursday.
Di Matteo succeeds Frenchman Remi Garde, who was sacked in March.
The 46-year-old Italian, who won the Champions League and FA Cup with Chelsea in 2012, has also managed West Brom, Schalke and MK Dons.
"I'm looking forward to the challenge of taking Aston Villa back to its rightful place," said Di Matteo.
Villa's statement did not mention former Reading and West Brom boss Steve Clarke, who is expected to be Di Matteo's assistant.
The pair have never worked together in management but were Chelsea team-mates for two years in the 1990s.
Di Matteo has not managed at Championship level since 2009-10, when he guided West Brom to the top flight.
Villa were also linked with ex-Manchester United boss David Moyes and new Derby County manager Nigel Pearson,
Dr Tony Xia, the Chinese businessman whose takeover of Villa is awaiting Football League and Premier League approval, has already promised extensive funds for player recruitment this summer.