Michel, one of the flagbearers of Real's famous 'Quinta del Buitre' generation of youngsters who broke into the first team in 1982 and kick-started a trophy-laden era for the Madrid club, is malaga's third manager this season.
Ex-Tottenham Hotspur and Sevilla coach Juande Ramos quit in December after taking over last summer while Marcelo was sacked with the team 15th in La Liga, seven points above the relegation zone, after a run of seven defeats, two draws and a win.
Michel has been a manager since 2005, working in Spain with Rayo Vallecano, Getafe, Sevilla and in Greece with Olympiakos, who he led to three league titles in a row and a domestic cup before being dismissed in 2015.
His last job was with French giants Olympique Marseille from the summer of 2015 until he was dismissed in April 2016.
Malaga qualified for the Champions League for the only time in 2012 after a multi-million euro investment by Qatari owner Sheikh Abdullah Al Thani in 2010 which saw the club sign the likes of Ruud van Nistelrooy, Julio Baptista and Santi Cazorla.
The club's fortunes have declined since Al Thani reduced his investment in the club, and Michel is their fifth coaching appointment since Manuel Pellegrini left in 2013.
(Reporting by Richard Martin; Editing by Ken Ferris)
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