He replaces Dick Advocaat, who oversaw the country's unsuccessful World Cup qualification campaign for Russian Federation this summer.
His coaching career began as an assistant to Guus Hiddink with the Dutch side in 1997, but he left after a year to take up a similar role under compatriot Louis van Gaal at FC Barcelona.
A legend with the Netherlands national team, Koeman was capped 78 times as a player and won the European Championship in 1988.
"I'm a coach who likes to change systems", he said.
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Koeman, who earned 78 caps for the Netherlands, succeeds Dick Advocaat, who had been brought in midway through a year ago after the sacking of Danny Blind in March.
Ronald Koeman on Tuesday was announced as the new manager of The Netherlands. The best way is so players can handle different systems. He was sacked by Everton in October, two months into his second season in charge.
That has given him time to spend back home in the Netherlands, drawing hope from watching young players in the Eredivisie. Koeman takes over a Netherlands team that is nearing the end of an era with winger Arjen Robben having retired past year, playmaker Wesley Sneijder approaching the end of his career, and all-time top scorer Robin van Persie now a substitute at Feyenoord.
But a tough baptism awaits, with friendlies lined up against two teams heading to the World Cup: England on 23 March in Amsterdam, and Portugal three days later.