"This is great news for the club who had made it a priority for him to succeed Pablo Correa," Nancy, who finished 13th in Ligue 1 last season, said in a statement.
The 56-year-old, known for having spotted the talents of Zinedine Zidane and Franck Ribery, left Auxerre last week after five years, having steered the club away from relegation in a season which they started in the Champions League.
Correa left Nancy after eight-and-a-half seasons in charge.
Fernandez had been linked in the media with Marseille where Didier Deschamps has still not committed himself to stay for next season and has been linked with AS Roma.
Lyon finished third in Ligue 1 last season and the club have yet to decide on the future of boss Claude Puel.
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