Waddock was only appointed to the role in March, but the former Wycombe Wanderers boss was unable to clinch a play-off spot.
Subsequently, the club have appointed Appleton, who returns to football for the first time since an ill-fated tenure at Blackburn Rovers.
The 38-year-old lasted just 67 days in charge between January and March 2013.
Appleton's appointment is part of a restructuring process, which sees Darryl Eales - former chairman of Formula One team Marussia - invest in the club and become joint-owner with Ian Lenagan.
Eales will take the role of chairman, with Mark Ashton named chief executive having previously had similar roles at Watford and Wycombe, while Lenagan will also remain on the board.
"I am delighted to announce the arrival of a new investor and shareholder in Oxford United, Darryl Eales, to stand alongside the Lenagan family bringing significant extra financial investment and management skills into Oxford United," Lenagan said in a statement on Oxford's official website.
"A new board of directors is now in place with Darryl taking up the position of chairman, Mark Ashton appointed as chief executive taking over responsibility for day-to-day management of the board’s existing strategy and Ian Lenagan taking board responsibility for the stadium development project.
"A change in personnel as a consequence of this new shareholding and management structure is the replacement of Gary Waddock by Michael Appleton since Mark Ashton wishes to have with him his own person as dead coach, having worked with Michael Appleton previously."
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