The 46-year-old will replace Jono Gibbes as Ulster head coach after the former New Zealand player announced he would step down at the end of the season.
"I am really excited that I will be taking on the Ulster head coach role. I know first hand from my years visiting with Connacht and Glasgow the passion and fervour that makes playing in front of Ulster fans so special," McFarland told Ulster's website http://www.ulsterrugby.com.
"It's a club with a great history and I welcome the challenge of being a part of their future."
Scottish Rugby said in a statement that Worcester Warriors head coach Carl Hogg has joined the national side's coaching staff on an interim basis.
Hogg and McFarland will work together as forward coaches during Scotland's 2018 tour of Canada, U.S. and Argentina.
Ulster have had an inconsistent season where they were knocked out of the Champions Cup in January and are currently fourth in Pro 14 Conference B.
(Reporting by Aditi Prakash in Bengaluru, editing by Pritha Sarkar)
