Setien had been in charge of Las Palmas for the last two seasons, but departed the Gran Canaria outfit following the completion of the 2016-17 campaign.
The 58-year-old has wasted no time returning to management, however, with Betis appointing their fourth manager since last summer.
A club statement read: "Real Betis Balompie has signed Quique Setien as the new coach for the next three seasons.
"The Cantabrian joins the green and whites until June 2020. With the arrival of Setien, the Real Betis bet on a style of play that is close to what the Betis fans demand."
Setien led Las Palmas to a 14th-place finish in La Liga last season, while Betis ended the campaign in 15th.