"I am delighted to have secured the services of a hugely experienced forward-thinking manager like Paul," Reading chief executive Ron Gourlay said.
Reading parted company with Stam after a run of poor results that left the second-tier club languishing in 20th place in the 24-team Championship, three points above the drop zone.
"Everyone at Reading is fully behind Paul and his players as we initially set our sights on an eight-game battle and continue to strive to the take this club forward," Gourlay added.
(Reporting by Shrivathsa Sridhar in Bengaluru; Editing by Toby Davis)
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