The 45-year-old Argentinian succeeds Miroslav Djukic, who left the club on December 12 after a disappointing six-month spell in charge.
Pizzi takes over a Valencia side that are 11th in the Primera Division standings with 20 points from 17 games, five points above the relegation zone and 13 off the Champions League places.
Valencia said in a statement on their official website: "Valencia have completed the appointment of Juan Antonio Pizzi as new coach.
"The Argentinian is accompanied by physical trainer Alejandro Richino and assistant Manuel Suarez.
"Soon the club will announce the time and date of his arrival in Valencia, and his official presentation as the new coach of Valencia."
Pizzi led San Lorenzo to the Argentinian Torneo Inicial title in December - for finishing the first half of the season in top spot - before deciding to return to Spain, where as a player he represented Valencia, Barcelona, Villarreal and Tenerife.
During his time at Tenerife, Pizzi won the Pichichi award for the leading scorer in the Primera Division after netting 31 goals in the 1995-96 season.
He also played 22 matches for adopted nation Spain between 1994 and 1998, having been born in Santa Fe in Argentina.
Away from Spain, the former striker also played for the likes of Porto, River Plate and Rosario Central during a career that spanned three different decades.
His first job as head coach came with Colon Santa Fe in 2005, and since then he has been in charge at Peruvian club Universidad San Martin, Chilean sides Santiago Morning and Universidad Catolica, and Argentinian outfits Rosario Central and San Lorenzo.
Pizzi returns to the Mestalla with Valencia struggling in the wrong half of the standings.
Under Djukic, who replaced Ernesto Valverde in June, the 2002 and 2004 Spanish champions only managed to pick up 20 points from their opening 16 league games before the Serbian left the club following their 3-0 defeat to Atletico Madrid earlier this month.
Youth coach Nico Estevez was then put in charge in temporary charge, and oversaw a 1-0 win over minnows Gimnastic Tarragona that saw Valencia progress through to the last 16 of the Copa del Rey, before Los Che suffered a 3-2 home league defeat to Real Madrid in their final game of 2013.
Valencia's domestic struggles are in contrast to their Europa League campaign, where they comfortably finished top of Group A with 13 points from six games. They will now face Dynamo Kiev in the round of 32.
Valencia are next in action on January 4 when they lost city rivals Levante in the league.