The 40-year-old has left his in position in charge of Scottish Premier League side St Johnstone to take over the vacancy at Ashton Gate.
McInnes will be joined at Bristol by his Saints assistant Tony Docherty.
"We're delighted to welcome Derek and Tony to Bristol City FC," chairman Colin Sexstone told the club's official website. "Throughout this process we received applications from a host of very strong candidates but in the end Derek stood out above all others.
"Derek was the unanimous choice of the board of directors and majority shareholder. He's an impressive character who is very highly rated in the game and comes here on the back of a superb stint at St Johnstone.
"Derek has the drive and energy that proved to us he was the right man to take the club forward."
McInnes has signed a contract until the summer of 2014.