Fonseca replaces Vitor Pereira at the Dragao following his work in guiding Pacos Ferreira to next season's Champions League for the first time in history.
The Portuguese champion has acted quickly in naming Vitor Pereira's successor following the 43-year-old's decision to move to Saudi club Al-Ahli on Sunday.
Fonseca took control of Pacos Ferreira last summer and steered the club to the 2013-14 UEFA Champions League qualifying round courtesy of a third-placed finish in his first season as a top-flight manager.
"It is an honor to represent the champions. I couldn't be happier and it was an easy decision to make," Fonseca told UEFA's official website. "I have ambition. I usually like to play with balance and keep possession – that is the hallmark of my teams. I want my team to dominate at a high tempo, and for that we need solidarity."
Porto recently lifted the Primeira Liga for a third consecutive season, going undefeated en route to the latest crown.