The former Manchester United and England full-back's first game in charge will be the Champions League clash with Lyon on December 9, as he takes his first steps in football management.
In a statement on the club's official website, Neville said: "I am absolutely thrilled to be given this opportunity with Valencia.
"Valencia are a huge football club of immense standing and I know from my time as a player the passion and dedication of the Valencia fans.
“I am really looking forward to working with the club’s talented group of players and am excited about the challenge ahead.
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“Throughout his career Gary has always shown great leadership both on and off the pitch. He is hugely respected in English football and it was his personal qualities which persuaded us that he was the right choice to lead Valencia until the end of the season."Neville replaces Nuno Espirito Santo, who was sacked following the club's 1-0 defeat to Sevilla on Sunday.
He has combined work as a television pundit with a coaching role for England under Roy Hogson since May 2012, but will remain a part of the Three Lions' backroom staff.
The former Manchester United and England defender's brother, Phillip, who has been Valencia's assistant manager since June, will take charge of the Copa del Rey clash with Barkaldo on Wednesday and their league meeting with Barcelona.
The two brothers have links with the Spanish club through los Che's owner Peter Lim, who also has a 50 per cent stake in non-league side Salford City, who were bought by the Nevilles and their former United team-mates Ryan Giggs, Nicky Butt and Paul Scholes in March 2014.