The interim man will be handed the reins through 2014-15 after securing his first league victory Sunday.
The former Spurs midfielder took over first team affairs after Andre Villas-Boas was sacked in the aftermath of a 5-0 defeat to Liverpool at White Hart Lane.
And after a Capital One Cup fifth round loss to West Ham, Sherwood oversaw an impressive 3-2 win against Southampton at St Mary's on Sunday.
"We were extremely reluctant to make a change mid-season, but felt we had to do so in the Club's best interests," Chairman Daniel Levy said in a statement. "We have a great squad and we owe them a Head Coach who will bring out the best in them and allow them to flourish and enjoy a strong, exciting finish to the season.
"We are in the fortunate position of having within our Club a talented coach in Tim Sherwood. We believe Tim has both the knowledge and the drive to take the squad forward."
Sherwood’s former Spurs teammates Les Ferdinand and Steffen Freund will make up the new first-team coaching set up along with ex-Swindon defender Chris Ramsey.
"I never said I wanted the job and I never said I don't want the job," the former Norwich midfielder told Sky Sports when questioned about his future on Sunday. "I've got to talk to the chairman and see where they want to take this football club. [Hopefully the decision will come] sooner rather than later, as these players need a manager.
"Hopefully I will speak to the chairman tonight. I don't want it (the job) on a temporary basis. I want it for the long term. It's got huge tradition but at the end of the day, it's got to be right for me."
Sherwood made 118 appearances as a player for Tottenham between 1999 and 2003, after joining the club from Blackburn for 4 million pounds, as well as picking up three caps for England.