Jackson has been in temporary charge since Graham Turner's resignation at the end of January.
Shrewsbury have taken two points during Jackson's four-game spell as caretaker, earning draws against Brentford and Port Vale, while slumping to defeats to Swindon Town and Sheffield United.
The New Meadow club are second bottom in League One, three points adrift of safety ahead of Saturday's crucial clash with relegation rivals Notts County.
But despite the disappointing results, Shrewsbury's hierarchy have been suitably impressed by Jackson, putting their faith in the 40-year-old, who ended his playing career with the club.
"It was clear Michael was the closest match to the profile the board set for the position," chairman Roland Wycherley said in a statement on the club's website.
"He is certainly highly qualified holding all professional coaching badges including a UEFA Pro Licence.
"Shrewsbury Town Football Club had always looked to promote from within if the talent existed.
"This brings continuity and stability and Michael has now been at the club for five-and-a-half years as a senior pro and coach.
"On the field, in an extremely tough spell of games the team has regained some pride and passion.
"Going forward Michael's analysis, vision and positive approach made the future exciting at a time, when it is all too easy to focus on the current league position."
