The 49-year-old has replaced Sean O'Driscoll after the Ashton Gate hierarchy decided he is the man to stop the club - who sit 23rd in the table - slipping to back-to-back relegations.
Cotterill made a name for himself while in charge of local rivals Cheltenham Town, whom he guided into the Football League.
An ill-fated spell at Stoke City that lasted just five months followed before spells at Burnley, Notts County, Porstmouth and Nottingham Forest, where he was succeeded by O'Driscoll.
And City vice chairman Jon Lansdown is confident Cotterill can steer the club out of the relegation places.
"I'm delighted that Steve has chosen to join Bristol City," Lansdown told the club's official website.
"I believe he has the drive, energy and ability to get us back to winning ways.
"He is passionate about bringing success to this club and I am looking forward to working with him to achieve that."
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