Stevens was announced as the interim head coach after Markus Gisdol was sacked on Monday.
The club is in the relegation zone, following a dreadful start to the season in which they lost six of their opening 10 league games, leading to Gisdol's dismissal.
The Dutch coach was brought in as a short-term measure and Nagelsmann will take charge following the conclusion of the current campaign.
"Despite the current difficult situation, it is important now to set an example for the future," Hoffenheim CEO Dr Peter Gorlich told Goal.
"The commitment to Julian Nagelsmann to take over the post of the head coach next year shows that we are planning in the long-term and remain true to our philosophy – to rely on our own offspring."
The young coach has never been at the helm of a senior side before, but has had a lot of success with Hoffenheim in the German A-Youth Championship, winning the tournament in 2014.
"I am looking forward to this exciting task and I thank you in advance for the trust placed in me and the opportunity," Nagelsmann added.
BVB Dortmund head coach Thomas Tuchel worked with the young coach when they were both at FC Augsburg and he has backed Nagelsmann to be a success at senior level.
"He's a very inquisitive and very hardworking young coach. He has celebrated exceptional successes in youth [football]. I'm very happy for him and I believe in him," Tuchel said.