Fallows, who has been Head of Scouting for ten years at Liverpool, joins the London Club from today and will be responsible for scouting, player loans and talent roads development.
Chelsea states that 65-year-old Fallows have signed a contract until 2031.
"We are happy to welcome Dave to Chelsea. His presence strengthens an already talented team as we continue to work on creating long-term success on the field," Chelsea's co-sporting directors Laurence Stewart and Paul Winstanley said.
Fallows said, "I'm excited to join the club and to work closely with Paul, Laurence, Joe, Sam and the other talented staff in Chelsea.
"I have already been impressed with the work put into the development and recruitment strategy at all levels, and I look forward to building on the solid foundations that have been laid."
Fallows was with Liverpool from 2014 to 2024.