Domenech had not managed a side since leading the French national team at the 2010 FIFA World Cup in South Africa, where Les Bleus failed to qualify from a group that included Uruguay, South Africa and Mexico.
The move is even more surprising given that Domenech’s last involvement in club management came way back in 1993 with Olympique Lyon.
Nantes were without a manager after dismissing Christian Gourcuff earlier in December.
A Nantes statement read: "FC Nantes announces the arrival of Raymond Domenech as main coach of the professional group, as of December 26, 2020.
"The technician is committed until the end of the 2020-2021 season."
The former Le Blues boss said: "I am very happy and very proud to join today a mythical French club such as Nantes.
"I cannot wait to get to work with the staff and to do everything possible for the club to once again find a place worthy of its rank."
Nantes have won just three of their 17 Ligue 1 games this season and are currently 16th on the table, two points above the relegation zone.
Domenech’s first game in charge of Nantes will be at home to Stade Rennes on January 6.
