Scholes, a lifelong Oldham fan who spent his entire playing career at United, won 11 Premier League titles, three FA Cups and two Champions League crowns before hanging up his boots in 2013.
He is the latest from England's so-called 'Golden Generation' to move into management, following in the footsteps of Frank Lampard at Derby County and Steven Gerrard at Rangers.
"There have been past options but now the time is right," Scholes, who was capped 66 times by England, told reporters.
"I know it has been 20 or 30 years since there has been excitement at the club and it has always been a club fighting relegation.
"I am like every other manager who has been here and I want to try and change things."
Oldham owner Abdallah Lemsagam is hopeful that Scholes' desire to succeed in his first managerial job will lift the spirits at Boundary Park.
"He is a man who will bring a lot of footballing knowledge and his hunger to succeed in management will be there for everyone to see," Lemsagam said in a statement.
Scholes has limited coaching experience, including four matches alongside Ryan Giggs when his former team mate took caretaker charge of United following David Moyes's sacking in 2014.
The former England international has worked as a television pundit for BT Sport in recent years.
Salford City said Scholes would resign as a club director, but will retain his shareholding alongside former United team mates Gary and Phil Neville, Giggs, Nicky Butt, David Beckham and businessman Peter Lim.
"Although Paul was never operational in Salford City he will resign as a director of the football club, allowing him to focus completely on his new role at Oldham," the National League club said in a statement.
Oldham sacked Frankie Bunn in December and academy coach Pete Wild was put in temporary charge of the team.
A 3-0 victory at Crawley Town on Saturday was Oldham's first in the league since New Year's Day and they are 14th in the fourth division table - nine points off the playoff places.
"I would not be here if I didn't feel excited by the team," Scholes added.
"I have watched football at all levels and the basics apply to any level that you are at.
"This is a squad that should be pushing for promotion. That might be out of reach for this season but certainly not for next season."
(Reporting by Hardik Vyas in Bengaluru, editing by Ed Osmond and Christian Radnedge)
