The Italian, who guided Paris Saint-Germain to the Ligue 1 title last season, has been expected to take the reins at the Bernabeu for some time.
The former AC Milan and Juventus coach has signed a three-year contract with the Spanish giants, according to Sky Sports News.
A statement on the former La Liga champions' official website said: "Carlo Michelangelo Ancelotti will coach Real Madrid next season.
"The Italian has experienced success in every country where he has managed and arrives in the Spanish capital after being named coach of the season in France."
As a result of Ancelotti's move, Laurent Blanc has replaced the Italian at Parc des Princes.