Pioli, who had been linked in the media with the vacant AS Roma job, led Chievo to mid-table security last term playing an attractive brand of football.
"I am very proud to be here," the 45-year-old said in a club statement. "When a big club like Palermo come knocking at the door you can't listen to other offers."
Pioli's decision to take the Palermo job means only two names remain in the frame for the Roma role, according to Italian newspaper reports.
Vincenzo Montella, who was interim boss at Roma but failed to secure Champions League football when they finished sixth, has been linked in the media with Palermo's Sicilian rivals Catania after coach Diego Simeone left by mutual consent.
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