The KNVB have been looking for a new head coach since Dick Advocaat stepped down from the position in November after failing to reach the World Cup.
Koeman has signed a contract that will put him in charge of Dutch fortunes up to and including the 2022 World Cup in Qatar, with the focus very much on getting there in the first place.
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Nico-Jan Hoogma, now with Heracles, was also named a top sports director and assistant for Koeman by the KNVB.
Koeman was a key member of the team that won Euro 1988 and said the team's recent decline shows today's footballers need to learn from other about discipline, love for the game and pride in representing their country, he said.
Guus Hiddink and Danny Blind held the position before Advocaat during a hard period, in which they failed to qualify for Euro 2016 or this year's tournament in Russian Federation.
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"I'm really positive about the future of the team as we have enough talent but we have to change some things, which I will talk about at a later stage", he said at a news conference after being named to the job by the Dutch football association (KNVB) on Tuesday. "We don't have the best players, but that does not mean you can not have the best team".
As a player, Koeman won 78 caps for Holland and was part of the great Dutch team that won Euro 88, starring alongside the likes of Ruud Gullit, Frank Rijkaard and Marco van Basten.
He later transferred to Ajax, where he became known for his powerful right-foot.
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