The Italian’s will be in the stands at Goodison Park for Saturday’s lunchtime game against Arsenal, with Duncan Ferguson continuing his caretaker role. Ancelotti’s first game in charge will be against Burnley on Boxing Day.
Ferguson and Ancelotti’s son Davide will work as assistants to the 60-year-old.
The appointment of Ancelotti is a major coup for Everton, who sit 16th in the Premier League table, three points above the relegation zone.
He is one of only three bosses to have won the Champions League three times – twice with AC Milan and once with Real Madrid – as well as winning domestic titles in Italy, England, France, Spain and Germany.
Ancelotti won the Premier League, FA Cup and Community Shield during his spell at Chelsea between 2009 and 2011.