The role has been vacant since the sacking of Giampiero Ventura following their embarassing failure to qualify for this summer’s World Cup.
Under-21 coach Luigi Di Biagio oversaw Italy’s friendly matches against Argentina and England in March.
Former Manchester City manager Mancini, 53, who is currently in charge of Russian side Zenit St Petersburg, agreed to take over after Carlo Ancelotti rejected the opportunity.
Mancini held a two-hour meeting with Italian FA sub-commissioner Alessandro Costacurta at his home in Rome on Monday as the terms of his appointment were thrashed out.
Zenit are not happy that Mancini is moving on having only taken the job last June, though they are only fifth in the Russian Super League standings with two matches remaining.
Mancini has managed Fiorentina, Lazio, Inter Milan (twice), Manchester City and Galatasaray.
With Inter he won three Serie A titles and he guided City to their first Premier League triumph back in 2012.
He could well take charge of Italy for their friendly matches against Saudi Arabia in May and France and Holland in June as they aim to rebuild their tattered international reputation.