Luis Enrique has left Barcelona after three successful seasons at the Nou Camp, winning nine major trophies along the way.
Valverde, meanwhile, departed Bilbao earlier this month amid heavy speculation he was set to take the Barcelona job.
The Catalan giants have been linked with a host of names – from Chelsea's Antonio Conte to Sevilla's Jorge Sampaoli.
But the club have now appointed Valverde instead, with the 53-year-old now the man charged with dethroning Real Madrid as La Liga champions.
Valverde spent two years at Barcelona during his playing days, scoring eight goals from 22 appearances.
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He left Bilbao for the second time in his career after a brief spell in charge during the 2002/2003 season.
His appointment was expected with Barcelona favouring former players in the top job in recent years.
Pep Guardiola and Enrique both played for the club before taking charge, while Tito Vilanova took the reins after working as Guardiola's assistant.
Valverde is expected to splash the cash this summer with a new right-back on his radar.
Barcelona have yet to replace Dani Alves, who joined Juventus last summer, while Valverde could also look at signing a new centre-back amid uncertainty over Javier Mascherano's future.
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Barcelona have confirmed the appointment of Ernesto Valverde as their new manager
Reports in Spain have also suggested Manchester United midfielder Ander Herrera is a target, with Valverde managing the Spain international during their time together in La Liga.
Barcelona chief Josep Maria Bartomeu said: "Thank you first to Luis Enrique, a great coach and a great FCB fan.We know the solutions in search of excellence"
"A new era has started. This morning we decided our new manager. It is going to be Ernesto Valverde
"Reasons? Experience, knowledge, loves working with Academy, his thinking is similar to our club's. He will be presented on Thurs."