The 46-year-old was on Saturday named as successor to Paul Lambert, who left the club on Wednesday with Villa languishing in the relegation zone.
Sherwood had been linked with the QPR job, but has now chosen to join Villa after a spell out of the game since Tottenham opted to part company with him at the end of last season.
The former Spurs midfielder told Villa's official website: "It is a great honour to manage one of the biggest clubs in English football.
"I can't wait to get started and I'm really looking forward to the challenge."
Villa chairman Randy Lerner believes Sherwood, who takes charge on the eve of Villa's FA Cup fifth round tie against Leicester City, is the right man to turn the club's fortunes around.
He said: "While being forever conscious of the frustrations that we all suffer, we feel that a change that offers a positive, fresh approach will be very good for the club.
"I know that Tom and many others at Villa worked very hard to recruit Tim in the face of severely limited time constraints and pounding pressure.
"More importantly, I know further that internally we remain focused and committed to challenges we face, and I am deeply appreciative for that."
Sherwood will need to address Villa's woeful record in front of goal, with the side having scored just 12 times in 25 league matches.
Villa have lost their last five top-flight matches and are without a league win since beating Leicester over two months ago.
Sherwood's first Premier League game in charge is set to come at home to Stoke City next weekend.
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