A number of managers had been linked with the position, but Lambert, who left Aston Villa last season following their struggles, has been the individual chosen to lead the club into a new era.
"I would like to thank the owners and board of directors for giving me the opportunity to manage such a fantastic club," Lambert told the club's official website.
"Blackburn Rovers is a club with superb support and fine traditions, being a founding member of both the Football League and the Premier League. After a short period out of the game, I feel refreshed and I am really looking forward to the challenge ahead.
"I bring with me a very trusted backroom team that I believe is equipped to help me create an exciting era for the club and I hope to deliver a brand of football that will both entertain the supporters and bring success."
Lambert will be joined at Ewood Park by former Blackburn midfielder Alan Irvine, who will act as assistant to the Scot.
The 46-year-old takes charge of a Blackburn team that have only won three of their 16 Championship games this season, with that poor run leaving the club in 16th position in the table.