Marcelino took Villarreal from Spain's second tier to three consecutive top-six finishes and the semi-finals of last season's Europa League. He was dismissed at the start of this campaign due to differences with the board of directors.
Marcelino has been out of work since, with league rules preventing a coach from working for two different top-flight clubs in the same season.
"Valencia CF and Marcelino Garcia Toral have reached a full agreement for him to be first team head coach for a minimum period of two seasons," the club statement said.
"His official presentation will be made following the final La Liga game and until then, the parties will not make any public statements."
Valencia are the fifth most successful side in the history of Spanish football and enjoyed a golden period at the turn of the century, with league wins in 2002 and 2004 and consecutive Champions League finals in 2000 and 2001, although they lost on both occasions.
If the club deliver on their promise to make Marcelino coach for a minimum of two seasons, it would make the Spaniard their longest serving manager since Unai Emery, who left in 2012 after four years in charge. Five years of upheaval followed.
Marcelino is their 10th appointment since Emery, and only Nuno Espirito Santo was able to achieve a top four finish before falling out of favour with supporters and being sacked in November 2015.
Nuno's unlikely successor Gary Neville posted the worst record in the club's history in a short-lived spell and Pako Ayesteran endured a miserable spell, sacked after beginning this season with four straight defeats.
The highly experienced former Italy coach Cesare Prandelli failed to turn things around and resigned in December after one win in eight games, citing broken promises from the board over transfer targets.
Marcelino will take over from caretaker manager Voro, who has steered the six-times Liga champions from the brink of the relegation zone to 13th in the standings since Prandelli resigned.
The club was purchased by Singaporean billionaire Peter Lim in 2014, whose initial cash injection led them to finish fourth in the table a year later.
Unrest among supporters grew following the sale of Andre Gomes, Shkrodan Mustafi and Paco Alcacer last summer, while president Chan Lay Hoon announced last month that she was resigning at the end of this campaign.
(Reporting by Richard Martin, editing by Ed Osmond and Richard Lough)
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