The former Tottenham boss replaces Paul Lambert on a three-and-a-half-year contract and joins a club in the Premier League’s bottom three.
United States manager Jurgen Klinsmann was also linked with the job, but Villa opened talks with Sherwood on Friday and a deal was quickly agreed.
He told the club website: “It is a great honour to manage one of the biggest clubs in English football. I can’t wait to get started and I’m really looking forward to the challenge.”
Sherwood has just six months’ experience as a manager with Tottenham, during which time he won half his 28 games.
But Villa’s chief executive Tom Fox pointed to the new man’s record with the Spurs academy as a key factor in his recruitment.
Fox said: “Tim had a fantastic career at Tottenham, not only in his brief spell as first-team manager but, just as importantly, in the role he played in developing young talent.
“We are determined to build a football operation with a long-term vision and a commitment to youth development. We strongly believe Tim has the qualities to get the best out of our current squad and help us build and develop for the future.”