Sheringham, 51, replaced Spaniard Jose Francisco Molina, who led ATK to their second title in three years in his only season as coach.
The Kolkata-based side, owned by a consortium including Spanish club Atletico Madrid and former India cricket captain Sourav Ganguly, also won the inaugural edition in 2014.
Sheringham, who won three Premier League titles and the Champions League with United, most recently managed English League Two (fourth division) side Stevenage.
The Jamshedpur Football Club, one of the two new entrants and owned by Tata Steel, have named another former England and Manchester United player, Steve Coppell, as their manager for the upcoming season.
The 62-year-old Coppell took Kerala Blasters to the ISL final against ATK last year and has previously managed numerous English clubs including Manchester City and Crystal Palace.
The fourth edition of the ISL will start on Oct. 1 with two new teams making it a 10-team league, running for five months.
(Reporting by Sudipto Ganguly; editing by Nick Mulvenney)
