"I am thrilled to be the manager of Southampton Football Club. From my very first meeting with (executive director) Les Reed, I could see clearly that this was the right club for me," the 51-year-old said in a statement.
"We share the same philosophy of football, and the same belief in how to develop the club. Southampton have a talented first-team squad, a world-class academy and the infrastructure to sustain success in the Premier League.
"The opportunity to continue the development of this famous football club was simply too good to turn down. I cannot wait to get started."
The Dutchman will be assisted at St Mary's by brother Erwin Koeman.