The club posted a video on their website of the Serb arriving in Valencia to sign his contract and said he would be presented to the media on Wednesday.
A former Yugoslavia international, Djukic spent six seasons at Valencia as a player and also had stints at Deportivo La Coruna and Tenerife.
Djukic is well known in Spain for missing a penalty kick late in Depor's final match of the 1993/94 season against Valencia which handed the title to Barcelona.
He told reporters earlier on Tuesday coaching a club of Valencia's stature was "a dream come true".
"I think we have a very good and very competitive team which is ready to achieve the club's goals," the 47-year-old added.
"I am ready and I have the calm that comes from knowing we have the tools to do great things."
The club has suffered an institutional crisis over the last few months which led to president Manuel Llorente quitting. A replacement is set to be appointed following a shareholders' meeting on Wednesday.
