Gerrard initially rejected Ettifaq's advances earlier in June but seems to have now had a change of heart.
The former Liverpool captain had been without a job since getting sacked by Aston Villa back in October after just 11 months in the role.
Ettifaq will be the third club of Gerrard's managerial career, having also taken charge of Rangers for three years.
He led Rangers to the Scottish Premiership title in the 2020/2021 season.
“Where legends are found. We’re thrilled to announce Steven Gerrard is our new head coach,” Al Ettifaq wrote on Twitter on Monday.
“Without a doubt Gerrard’s presence will be an addition and a quantum leap to our league,” said Al-Ettifaq president Engineer Khaled Al-Dabel.
Gerrard has signed a two-year contract with Ettifaq, who finished seventh in the 16-team Saudi Pro League last season.
The Saudi top flight will be expanded to 18 teams next season.
Various clubs in Saudi Arabia have signed some big names from European football over the last few months, with the likes of Cristiano Ronaldo, Karim Benzema, N'golo Kante, Kalidou Koulibaly and Edouard Mendy joining the league.
