Gallardo, who also played for Monaco and Paris Saint-Germain and went to the 1998 and 2002 World Cups with Argentina, hung up his boots earlier this month after helping Nacional win the Uruguayan Clausura championship and 2010/11 league title.
"It's official, Marcelo Gallardo is the new coach of Nacional," the club said on their website.
Juan Ramon Carrasco, the coach who steered three times South American champions Nacional to the title, resigned over differences with the club's board.
"There are certain things that you can think about, plan, and others that happen like this and you have to make decisions," the 35-year-old Gallardo, nicknamed 'Babyface', was quoted as saying on Thursday by the daily El Pais about Nacional's offer.
"I welcome it when such options come up. That a club like Nacional, whose colours I was defending as a player up to a short time ago, should look to me to give me the responsibility of being their trainer makes me proud and is a big challenge. I'm looking forward to getting started."
Get the best features, fun and footballing frolics straight to your inbox every week.
Thank you for signing up to Four Four Two. You will receive a verification email shortly.
There was a problem. Please refresh the page and try again.