Yallop's arrival comes after former head coach Frank Klopas and head of soccer operations Javier Leon left the club on Wednesday following their failure to reach the play-offs.
The former Canada international defender has previously managed his country while also enjoying stints in club football at LA Galaxy and San Jose Earthquakes.
Yallop guided San Jose to MLS Cup championships in 2001 and 2003, and was named Coach of the Year in 2001.
And in a statement on the Fire's official website, he said: "This happened very quickly. I'm very excited about the opportunity to be joining the Fire, a great organisation and just working with (owner) Andrew (Hauptman).
"He's the one that really pushed it and made sure we're going in the right direction. I'm very excited to get going. I can't wait to get to work and I'm really looking forward to the opportunity."
Hauptman added that Yallop is of sufficient calibre to improve the club's fortunes, adding that his experience will stand them in good stead.
"I'm incredibly excited to be welcoming Frank Yallop as the new head coach of the Chicago Fire Soccer Club," he said.
"I have an enormous amount of respect for him - I've had the pleasure of getting to know him over some time and I have a real confidence in his soccer acumen.
"I have faith in his history in building incredible team spirit with all the clubs he’s been with. He has an impressive depth of experience and that’s exactly what the club needs."
