The 36-year-old, who spent last season in charge of the A-League club's youth team, got the nod ahead of Heart assistant coach Ante Milicic.
"I'm honoured and delighted to have been appointed head coach of Melbourne Heart FC," Aloisi said.
"The club is well positioned to succeed, with an exciting young core at the heart of our team, and I'm confident we will be able to build on last season's success over the next few years."
He replaces John Van 't Schip at the helm after the former coach announced he was leaving the club earlier this year.
Van 't Schip has since signed a two-year deal with Mexican club Guadalajara.
Aloisi is the only Australian to have played in the English Premier League, Italian Serie A and Spanish La Liga, and will hope his success on the field transfers to the dugout.
He was a Heart player in the club's foundation season before calling time on his distinguished playing career in 2011.