Milan have been in the hunt for a new boss since Gennaro Gattuso's departure at the end of last season, after the former Italy international failed to lead the Rossoneri to a Champions League spot in Serie A.
Sporting director Leonardo also left the with Gattuso as they sought a complete overhaul.
Giampaolo will now be in charge of leading the revival at San Siro.
Lovren failed to get regular game time for the European champions last term, with the likes of Virgil van Dijk, Joe Gomez and Joel Matip all being prefered at centre-back.
Giampaolo will already be considering how to get the best out of Krzysztof Piatek and could look to build a team around the 23-year-old.
Piatek scored nine goals in 18 Serie A appearances for Milan after signing from Genoa last January as a replacement for Gonzalo Higuain, who ended his loan from Juventus early in order to join Chelsea.
But Milan will not be the only club looking to make an impact in Serie A next term.
The Italian top flight is taking on a new look with a number of fresh faces coaching its top clubs.
Antonio Conte joined Inter last month after spending a year out of the game following his departure from Chelsea, and Maurizio Sarri left the west London club to join Juventus.
With new men at the helm of both Milan-based clubs, they will be looking to improve on their fourth and fifth-placed finishes last season.