The Scotsman was expected to be announced as the new man in charge of the Reebok Stadium after Crystal Palace confirmed the coach's exit earlier this week.
Bolton chairman Phil Gartside told the club's official website: "Dougie is young and ambitious. When we met his enthusiasm and knowledge of the game was evident.
"He has a real drive and passion, and knows what we want to achieve and how we want to go about it. I am looking forward to working with Dougie to secure that."
Freedman added: "I am delighted to join Bolton. The club is geared up to getting back into the Premier League. There is an impressive setup and structure in place, and a first team squad of undoubted quality. I am excited about the challenge ahead of us."
Freedman left Crystal Palace after 21 months in charge of the club.