Houllier will succeed Martin O'Neill and has returned to the Barclays Premier League after a six-year absence since ending his reign at Liverpool.
He had been working as technical director for the French Football Federation.
New era: Houllier has been named at the new Aston Villa boss
The 63-year-old is relishing the challenge of helping Villa to build on the success achieved under O'Neill, who resigned five days before the start of the campaign.
But there was no indication of who will be Houllier's No 2 after Phil Thompson declined the opportunity to reunite the partnership which had been successful at Anfield.
Houllier said: 'I am very happy and proud to join this great and historic club. It was a very difficult decision for me to leave the FFF [French Football Federation].
Prize guy: Houllier won trophies as Liverpool boss
'But I could not turn down the opportunity to manage a club whose approach, both on and off the pitch, I have long admired.
'Aston Villa is one of England's biggest clubs and has an amazingset of fans. This is a tremendous challenge and one I am very muchlooking forward to taking on.'
Villa chief executive Paul Faulkner said: 'Two of the key qualitieswe identified as being of crucial importance were experience ofmanaging in the Premier League and a strategy for building on theexisting strengths in our current squad.
'Gerard Houllier comfortably satisfies these criteria. In fact, he stands out as a football man who understands the ethos of our club and shares our core values.
'We look forward to working with Gerard and supporting him. We ask our supporters to get behind the new manager and the team aswe look to build on the progress we have made over the past four yearsin all areas of the club.'
Houllier becomes Villa's 25th manager in their 126-year history and only their second foreign manager after the Czech Jozef Venglos who was in charge for one season two decades ago.
He enjoyed success at Lens, Paris St Germain and Lyon in addition to Liverpool whom he steered to a UEFA Cup, FA Cup and League Cup treble in 2001.
He had two spells as technical director of the FFF and in the first one was a key component in his country winning the 1998 World Cup.
How Houllier the Eurocrat won over Aston Villa while Eriksson failedEXCLUSIVE: Houllier set for job with Aston Villa as ex-Liverpool boss returns to EnglandA Houll lot of trouble! The key issues facing new Aston Villa boss Gerard HoullierI want to be like Houllier! Carragher hails former boss as his inspirationASTON VILLA FC