The 44-year-old has been without a club since May 2021 when he left Napoli, with whom he won the Coppa Italia the previous year.
Former Italy midfielder Gattuso had been named Fiorentina manager last summer but parted company with the club before his official start date.
Gattuso, who spent 13 years as a player at AC Milan, replaces Jose Bordalas, who was sacked on Friday.
Six-time Spanish champions Valencia finished ninth in La Liga in 2021-22.
Former Italy midfielder Gattuso had been named Fiorentina manager last summer but parted company with the club before his official start date.
Gattuso, who spent 13 years as a player at AC Milan, replaces Jose Bordalas, who was sacked on Friday.
Six-time Spanish champions Valencia finished ninth in La Liga in 2021-22.
In a promotional video announcing his arrival, he said: ‘I experienced a respected Valencia. A team, together with the fans, everything connected by heart.
‘For me, football means passion, it means respect for the game and love for playing with the ball.
‘I know what it is like to fear Valencia, I have seen great teams fall at this stadium, which this season will be 100 years old. Valencianistas, let’s experience this season with passion and let’s enjoy the DNA of Valencia. I’m here.’
He then signed off with a message in Catalan, saying ‘Amunt Valencia!’, meaning ‘Go Valencia!’ in the regional language.
