The Saudi Arabian soccer federation (SAFF) announced on Sunday the Italian has been given a four-year contract.
His first matches in charge will be for friendlies against Costa Rica, on September 8, and South Korea four days later - both will take place in Newcastle, England.
"I made history in Europe, now it's time to make history with Saudi," Mancini said in a video posted to social media by SAFF.
Italian media reported Mancini's contract is worth 25 million euros ($A42 million) a year.
Mancini, 58, is the latest big name to become part of Saudi's soccer revolution, after clubs from the oil-rich kingdom splashed the cash in the off-season on a number of high-profile players including Cristiano Ronaldo and Karim Benzema.
"This is a great opportunity for me to experience football in a new country, especially with the growing popularity of football in Asia," Mancini said.
"I firmly believe that the passionate footballing culture of Saudi Arabia and the intrinsic quality of Saudi players are crucial ingredients for success.
"The presence of top players in the Saudi Pro League indicates the potential for growth in the national football scene."
Mancini stunned Italian soccer when he quit as national coach earlier this month, ending an an up-and-down tenure that included a European Championship title in 2021 but also a failed qualification for last year's World Cup.
He was replaced by Luciano Spalletti, who led Napoli to the Serie A title last season.
Mancini won three successive Serie A titles with Inter Milan - from 2005 to 2008 - as well as steering Manchester City to the English Premier League in 2012.
"We are delighted to welcome Roberto Mancini to lead the Green Falcons," SAFF President Yasser Al Misehal said.
"We're a footballing nation and we (are) continuing to invest at every level in our journey to compete with the best in the world on and off the pitch."
The Asian Cup, hosted by defending champions Qatar, starts in January. The Saudis are drawn in a group with Kyrgyzstan, Oman and Thailand.
The friendlies against Costa Rica and South Korea will be at St. James' Park, the stadium of Premier League team Newcastle whose majority owner is the Public Investment Fund that manages $US700 billion ($A1.1 trillion) of Saudi sovereign wealth.
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