Rooney has agreed a three-and-a-half-year contract to replace John Eustace at St Andrew's after leaving Major League Soccer side DC United last week.
Eustace, in charge for just 15 months, was sacked despite guiding Birmingham to sixth place in the Championship this season and Rooney will be expected to oversee a push for promotion to the Premier League.
"I am absolutely delighted to be joining Birmingham City at such an exciting time. It is very clear that they have a plan and are committed to realising their ambition for the club," Rooney said.
‘Building managerial career’
"We are fully aligned on what is expected. I have been building my managerial career, putting myself in challenging environments, to get me ready for this opportunity.
"It's a project that gives me a sense of purpose and I can't wait to get started.”
Joining Rooney on his Birmingham backroom staff are former England team-mate Ashley Cole, currently England Under-21s assistant coach, and John O'Shea, the assistant coach of the Republic of Ireland.
Carl Robinson and Pete Shuttleworth, who both worked with Rooney at DC United, will also move to St Andrew’s.
"Wayne is a born winner. We believe, with the support of his coaching staff, the club, and our supporters, he will take Blues forward on the next stage of our journey," Birmingham co-owner Tom Wagner said.
Rooney previously managed in the Championship with Derby between November 2020 and June 2022.
The 37-year-old was unable to stop Derby being relegated to the third tier in 2022 after the club were deducted 21 points for entering administration and financial breaches.
He also failed to take DC United into the MLS play-offs this season.
During his glittering player career, Rooney was a teenage sensation with Everton before joining United in 2004.
He became United's record goalscorer and won five Premier League titles, as well as the Champions League, Europa League, FA Cup and three League Cups.
Wagner is confident Rooney's vast experience at the highest level can revitalise an ambitious club that last played in the Premier League in 2011.
"His playing philosophy will help to realise the ambitions we have set for Birmingham City," Wagner said.
"Wayne has been preparing for an opportunity like this since he embarked on his coaching education whilst still a player at Manchester United.
"He and his staff have the full support of the Board and everyone at the football club.”
US company completes takeover
US-based Shelby Companies Limited completed a takeover of Birmingham in July and soon afterwards seven-time Super Bowl champion Tom Brady became a minority owner in the club.
Rooney knows the involvement of Brady, who starred in the NFL for the New England Patriots and Tampa Bay Buccaneers, underlines Birmingham's desire to target a place in the Premier League.
"We have some exciting young players in the squad, and some who are still to break through into the first team, alongside a core of experienced senior professionals," Rooney said.
"I have a clear way that I want the team to play, and my coaching staff and I will work hard to implement it.
"We will create a winning culture here with an identity that gets Blues fans on their feet."