Babbel, 45, was announced as the A-League club's new boss on Saturday, having left his post at Swiss side Luzern in January.
"Today we have made a statement about our future and I am very proud to announce Markus Babbel as our new head coach," Wanderers chairman Paul Lederer said.
"In the next 18 months we will have our new training facility finished, our new stadium open and our club ready to take another giant [step].
"Having a coach like Markus involved with this club will make us a force in this league as we strive to win trophies, return to the AFC Champions League and make a statement not only in Australia but internationally as a football club."
Western Sydney – A-League premiers in 2013 and AFC Champions League winners a year later – finished in a disappointing seventh last season.