The 54-year-old Frenchman was also in charge at Monaco, Lille and Olympique Lyon, whom he led to the Champions league semi-finals in 2010, but has never worked outside his native country.
"It was an easy decision to make," Puel told the club website (Saintsfc.co.uk).
"I thought of all the possibilities at this club, the very good players, good persons."
Puel has a close relationship with Arsenal manager Arsene Wenger under whom he played at Monaco.
Puel will be joined at St Mary's by former Aston Viilla caretaker manager Eric Black, who has been appointed assistant manager and Frenchman Pascal Plancque who is assistant coach.
Puel's appointment ahead of the experienced Manuel Pellegrini, who was also interviewed for the position, will be seen as a gamble for the South Coast club who have had a high turnover of managers, appointing 15 in the past 16 years.
Southampton, who have qualified for the Europa League group stages, said they were impressed by Puel's track record in developing young talent, a key requirement at a club which has regularly sold their best players.
"The development of our young Academy players and delivering a pathway to the first team is key to the role," said executive director of football Les Reed.
“As the process eliminated a number of excellent candidates, Claude clearly came out on top of a very impressive shortlist. We have not only got the best man, but the right coaching team to support him."
Southampton have sold two key players recently, striker Saido Mane moving to Liverpool for a reported 34 million pounds ($45.6 million) and midfielder Victor Wanyama to Tottenham for 11 million ($14.76 million).
Koeman left Southampton to take over as Everton manager this month.
(Reporting by Neil Robinson, editing by Ed Osmond)
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