Leicester parted ways with former manager Ruud van Nistelrooy last month following the club's relegation to the English second tier after finishing 18th in the Premier League.
"This is a fantastic club with a proud history, and it’s a privilege for me to be asked to help write the next chapter," Cifuentes said in a statement shared by Leicester.
The Spaniard, 43, previously coached Hammarby, whom he led to a Swedish Cup final and UEFA Conference League qualification. He took over at QPR in October 2023.
QPR put Cifuentes on gardening leave in April, ahead of their final game of the Championship season, as they finished 15th, seven points clear of the relegation zone.
Leicester begin their 2025/26 Championship campaign at home against Sheffield Wednesday on August 10.