The Galatasaray boss will now also be in charge of the national side and will attempt to get the team's World Cup qualifying campaign back on track
Terim, 59, has already performed the role of Turkey boss on two previous occasions. His most successful stint with his country was back in 2008, when he guided the team to the semifinals of the European Championship.
And Terim, who will take over for the remaining four qualifiers as Turkey looks to reach World Cup 2014, has already outlined his targets.
He told reporters: "We will give everything we have to be in Brazil for World Cup. But our main goal is reshape Turkish football and resolve the problems."
Galatasaray's coach replaces Abdullah Avci following the mutual termination of his contract, with Turkey struggling in its quest to make the World Cup.
Terim's men are in fourth place in Group D, having taken seven points from their opening six matches. Their next game is against Andorra.