Charnley had been the football secretary at Newcastle, having been appointed as a director in 2008.
Charnley takes the role vacated last summer by Derek Llambias, who resigned following the appointment of Joe Kinnear as director of football.
Kinnear was criticised after failing to secure any permanent signings in last summer's transfer window and he resigned in February.
Ashley joins Charnley, who is expected to have a key role in player recruitment, and finance director John Irving on the board of directors.
It has been a tough few weeks for Newcastle, who sit ninth in the Barclays Premier League but have lost their last three games, conceding 11 goals and scoring none.
Manager Alan Pardew, meanwhile, has had to watch from the sidelines after being handed a seven-match ban for head-butting Hull's David Meyler.
But Charnley believes the club is in a great position and he said: "It is a real honour to be confirmed as managing director.
"I have been with the club for almost 15 years and have seen a great many changes in my time here. The club has never been in such a stable and healthy financial position, which gives us the best possible platform from which to grow.
"I am confident that, with our dedicated, hard-working and loyal employees, together with Alan Pardew and his backroom staff, we will progress the club, both on and off the field over the coming years.
"Our immediate priority of course is to finish this season as strongly as possible.
"Our minimum target for this campaign was a top-10 finish, but I can assure our supporters that everyone at Newcastle United will do their utmost to ensure the club finishes in the highest league position it can."
Charnley also moved to assure supporters that plans for the summer transfer window are well under way.
He said: "This club is financially strong and there is money to spend if the deal is right and we are confident a player can add quality to the squad."