The 58-year-old former Manchester United captain will succeed Rafael Benitez, who left to take charge of Chinese Super League side Dalian Yifang following the expiration of his contract at the end of June.
Bruce held talks with Newcastle United over the weekend and resigned from his position as manager of Championship side Sheffield Wednesday on Monday in order to take his new job.
Bruce only joined Wednesday in January, guiding them to a 12th place finish in the Skybet Championship.
Bruce is a boyhood Newcastle United fan but his two-year spell as manager of their bitterest city rivals Sunderland between 2009 and 2011 has led to some fans of the club questioning his appointment.
Bruce said: "I'm delighted and incredibly proud to be appointed as head coach of Newcastle United. This is my boyhood club and it was my dad's club, so this is a very special moment for me and my family.
"There is a huge challenge ahead of us, but it's one that my staff and I are ready for. We'll roll our sleeves up and we'll be giving it everything from the off to ensure supporters have a successful team that they can be proud of."
Bruce has a wealth of experience managing in the Premier League after spells at Wigan Athletic, Birmingham City, Hull City and Sunderland.
Newcastle United will be the 11th club Steve Bruce has taken charge of in his managerial career.
Bruce brings on board two of his assistants at Sheffield Wednesday, Steve Agnew and Stephen Clemence, who also left their posts at the Championship club.
