Bruce, former manager of Villa's arch-rivals Birmingham City, replaced Italian Roberto Di Matteo, who was sacked after 124 days in charge with the club 19th in the Championship standings following their relegation from the Premier League.
"It’s a wonderful opportunity. It is one of the big clubs of this country. To be given the opportunity to manage it is terrific," the 55-year-old Bruce told the Villa website.
"I relish the challenge of trying to take the club where it wants to go and needs to be -- and try to turn around the misfortune we seem to have had over the past few years.
Bruce has been without a club since he quit as Hull City manager in July after leading the team to Premier League promotion with a playoff victory over Sheffield Wednesday.
The former Manchester United captain, who has managed several English clubs including Wigan Athletic, Sunderland and Sheffield United, was interviewed for the England manager's job before Sam Allardyce was appointed in July.
"With his track record, not only at leading teams to promotion from the Championship, but also vast experience in the Premier League, I believe we have secured the services of an excellent manager," Villa owner Tony Xia said.
Villa, seven-times English champions, won the European Cup in 1982 and finished runners-up to Manchester United in the inaugural Premier League season in 1992-93.
Their fortunes declined, however, under a succession of different managers and they finished 17 points adrift at the bottom of the standings last season to be relegated from the top flight for the first time since 1987.
“In the recent transfer window we focused on character, personality and experience," Chief Executive Keith Wyness said.
"These three words can be applied in spades to Steve Bruce and I look forward to working closely with him as we turn the club around and get us back to where we all want to be.”
(Reporting by Ian Rodricks in Bengaluru and Ed Osmond in London, Editing by Toby Davis)
