The former Tottenham boss replaces Paul Lambert on a three-and-a-half-year contract and joins with the 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 his six years at White Hart Lane included a spell in charge of the club’s academy and Chris Ramsey, the new QPR manager who was Sherwood’s coach at Spurs, this month credited his old boss with developing a system that produced the likes of Harry Kane, Nabil Bentaleb and Ryan Mason.
That track record impressed Villa chief executive Tom Fox, who 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.”
Villa owner Randy Lerner said: “While being forever conscious of the frustrations that we all suffer, we feel that a change that offers a positive, fresh approach will be very good for the club.
“I know that Tom and many others at Villa worked very hard to recruit Tim in the face of severely limited time constraints and pounding pressure.
“More importantly, I know further that internally we remain focused and committed to challengeswe face, and I am deeply appreciative for that.”