The 50-year-old succeeds John Gregory, who was sacked four weeks ago on Monday, and has agreed a contract with the Rs until the end of the 2009-10 season.
Mick Harford, who led Rangers to two wins and two draws as caretaker manager to guide them off the foot of the Championship table, turned down a coaching role at the club and has left with immediate effect.
"I am very excited at this fantastic opportunity to join Queens Park Rangers as their first-team coach," De Canio told the club's official website.
"For me it will be an honour to work for QPR, a club which is backed by Bernie Ecclestone and Flavio Briatore, two businessmen with an incredible track record of success in sport and other fields.
"I would like to thank them and I will not disappoint their expectations. I am fully committed to the project and I am looking forward to getting to work with the players in preparation for our forthcoming home fixture against Hull City on Saturday."