Wolves surprise fans as Italian replaces sacked Kenny Jackett
Zenga, who played 58 times for his country, has managed Catania, Palermo and Sampdoria, and was most recently coach of Al-Shaab in the UAE.
The 56-year-old succeeds Kenny Jackett, who was sacked on Friday, eight days after the club were taken over by a Chinese conglomerate.
Director Jeff Shi said Zenga's aim is "promotion to the Premier League".
He added: "Walter is a hugely passionate personality who lives for football and is fiercely determined to succeed in everything that he does.
"He has an excellent track record both as a player and as a coach and a wealth of experience he can bring to his new role at Wolves."
Zenga will officially begin his new role on Monday but was at Molineux on Saturday, where he saw his new side beaten 4-0 by Swansea in a pre-season friendly.
Italy's first-choice goalkeeper when they hosted the World Cup in 1990, he spent the majority of his playing career at Inter Milan.