Hughes, who was sacked by QPR in November, replaces Tony Pulis, whose seven years in charge at the Britannia Stadium came to an end earlier in May.
Hughes replaced Neil Warnock as QPR boss in January 2012, but after keeping the club in the Premier League, the former Manchester United striker was sacked in November of the same year and replaced by Harry Redknapp, having picked up just four points from the first 12 games of the 2012-13 campaign.
The 49-year-old Hughes started his managerial career in charge of the Welsh national team and then ejoyed a successful spell at Blackburn, guiding Rovers to a sixth-place finish in the top flight. Manchester City hired Hughes in 2008, but the eventual takeover of the club by the Abu Dhabi United group led to his sacking and the appointment of Roberto Mancini.
Hughes' last full season in management saw him guide Fulham to eighth in the Premier League in 2010-11, before resigning the following summer. He inherits three U.S. internationals, with Geoff Cameron, Maurice Edu and Brek Shea all under contract with the Potters.