The 45-year-old has signed a "long-term deal" with the newly-relegated League Two outfit.
Tisdale was the longest-serving manager in the Football League, having spent 12 years with Exeter before rejecting a new contract in the wake of their playoff defeat to Coventry City.
"When the owner contacted me we discussed the opportunity for a fresh approach, both on and off the pitch," Tisdale told the club's official website.
"We have a shared vision for the club and want to build a unique environment and culture - one which will best enable the players to perform and become part of a winning football team.
"I am excited by the club's ambition and relish the challenge of guiding MK Dons to fulfil its undoubted potential."