Ramalho, considered last year for the Brazil job left vacant after the World Cup, quit 2010 Brazilian champions Fluminense in mid-March complaining of a lack of facilities. At Santos' Vila Belmiro premises, he will enjoy a modern training complex.
"I liked the attitude of the board who showed transparency, seriousness and good planning. That's why we reached an agreement," the 55-year-old said on the club's website.
Ramalho, who last year won his fourth Brazilian championship in five years after a hat-trick of titles with Sao Paulo, faces the enticing job of managing Brazil's biggest finds of recent times in Neymar and Paulo Henrique Ganso and meeting the fans' demands for titles before they are scooped up by European clubs.
Since Adilson Batista resigned in February, Santos have been under caretaker coach Marcelo Martelotte with poor results.
Santos are behind rivals Palmeiras, Sao Paulo and Corinthians in the Paulista (Sao Paulo) state championship, while in the South American Libertadores Cup they have taken two points from three matches in Group Five where they lie third.
Last year, Ramalho turned down the Brazilian Football Confederation's (CBF) offer to replace World Cup coach Dunga because Fluminense would not release him from his contract.
His move to Santos is the 11th coaching change of the year among the 20 first division clubs that will play in the Brazilian championship starting in May.
Adilson Batista, sacked by Santos after one defeat in 11 matches, took charge of Atletico Paranaense on Tuesday. He is their third coach this year.
