The 46-year-old says he is "happy to be home" after returning to the club he spent six years with as a player
The former Valladolid boss announced his exit from the Jose Zarillo at the end of last season, where he lead the Pucela to a 14th-placed finish after winning promotion to the top-flight in 2012.
The Serbian, who spent six years with los Che as a player, revealed his delight at returning to the Mestalla where he hopes to achieve "great things".
Speaking to club's official website, Djukic said: "I am very happy to return home. It's a dream to coach a club the size of Valencia, but also a great responsibility. I'm prepared and calm. We can do great things.
"We have very strong opponents for pre-season, world-class opponents and we like to compare ourselves with the best. I'm happy to be home and will try to fulfill what the club expects of me."
The 46-year-old succeeds Ernesto Valverde, whose fate was sealed after slipping out of the Champions League places at the expense of Real Sociedad on the last day of the season.
Djukic will be presented to the media on Wednesday.