Benitez had been out of work after being dismissed by Real Madrid in January and the Spaniard, who still has a house in the North West of England following his six years in charge of Liverpool, had said he was keen to return to the Premier League.
The Spaniard has now signed an initial three-year contract with Newcastle and faces the task of guiding the club clear of the relegation zone with 10 games of the season remaining.
Newcastle have lost five of their last six matches and are second from bottom of the Premier League, but they are just a point behind arch-rivals Sunderland in 17th and have a game in hand.
Benitez told Newcastle's official website: "I have the pleasure to confirm I have committed to a legendary English club, with the massive challenge of remaining part of the Premier League.
"It will be a challenge not just for me and my staff but for the players, the club and the fans.
"All of us must push together in the same direction and with the same target in mind. This is the reason why I'm going to ask for your total support to successfully complete this task.
"Personally, it means my return to the Premier League, closer to my home and my family. I can't be happier.
Newcastle confirmed that Fabio Pecchia, Francisco de Miguel Moreno, Antonio Gomez Perez will join the Newcastle coaching team, working alongside Ian Cathro and Simon Smith.
His contract is reported to contain a break clause that can be activated if he fails to save the club from relegation.
Newcastle managing director Lee Charnley said: "I am very pleased to welcome Rafa Benitez to the club. In Rafa we have, without doubt, secured the services of one of Europe's top managers.
"He has managed some of the most successful teams at the very highest level of the game and we are proud to now have him as our manager.
"Our sole focus now is to give our full support to Rafa, his coaching team and the players in order to secure our status in the Premier League.
"I would like to place on record my sincere thanks to Paul Simpson, Alessandro Schoenmaker and Steve Black for their service to the club."
Newcastle, whose next match is against Premier League leaders Leicester City on Monday, spent heavily on the squad following the appointment of McClaren last summer but have been in poor form since the departure of Alan Pardew to Crystal Palace in January 2015.
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