The former Real Madrid boss has been appointed as Manuel Pellegrini's successor following the Chilean's departure earlier this summer
The Primera Division side were in the market for a new coach due to the departure of Manuel Pellegrini, who said farewell to the club earlier this summer and is seemingly on his way to Manchester City, and they see the 53-year-old Schuster as the ideal replacement.
Schuster had been out of work ever since he resigned at Besiktas in March 2011 and will now be looking to relaunch his coaching career at Malaga after being handed a deal until 2018.
He previously trained teams such as Koln, Xerez, Shakhtar Donetsk, Levante, Getafe and Real Madrid and enjoyed spells at Barcelona, Real Madrid and Atletico during his playing career.
The former West Germany international's first major task at Malaga will be to make a decision on the future of Isco together with sporting director Armando Husillos.
The Spain international, 21, inked a new deal with Malaga until June 2016 earlier this season, but is continually being linked with a move to a bigger club as Real Madrid, Paris Saint-Germain and Manchester City closely monitor his situation.
Schuster will be presented to the press next week.