The former England head coach has left his role at QPR to join the Rams after Nigel Clough was sacked following defeat to Nottingham Forest.
McClaren has agreed to a two-and-a-half-year deal with the Championship outfit that sees him return to Pride Park 14 years after leaving to join Manchester United as Alex Ferguson's assistant.
In his previous spell at the club, McClaren assisted Jim Smith as the Rams won promotion to the Premier League. McClaren has left his position at QPR to join the Rams, who have also added first-team coach Paul Simpson and former Man Utd goalkeeper coach Eric Steele to a new-look coaching set-up.
After his two-year-spell at Old Trafford, McClaren went on to manage Middlesbrough, Twente, Wolfsburg, Nottingham Forest and England.
The 52-year-old McClaren arrives at the club after Clough was sacked following the club's 1-0 defeat to fierce rival Forest at the City Ground on Saturday. Clough had spent more than four years at the club but was not deemed able to take the team to the next level by the owners.
"We are thrilled to announce Steve McClaren as our new head coach," Derby president and chief executive Sam Rush told the club's official website. "When we announced the departure of Nigel Clough it was stated that we were conducting a comprehensive review of the football structure, and we believe this is a major step forward in that regard.
"Our goal is to have Derby County competing for a playoff place and beyond, and we feel with Steve and his team at the helm we have a great opportunity to do so.
"Steve is a highly qualified coach with all the skill-sets required to be a success here at Pride Park."