The former England midfielder guided Spurs to a 3-2 win at Southampton on Sunday as interim boss and has now been handed a contract until the end of the 2014-15 Premier League season.
Sherwood, 44, replaces Andre Villas-Boas, who was sacked last week.
"We believe Tim has both the knowledge and the drive to take the squad forward," Tottenham chairman Daniel Levy told the club's official website.
Sherwood, who won three caps for England, joined Tottenham as a player in 1999 from Blackburn, where he won the Premier League title in 1995. He left White Hart Lane in 2003 and moved to Portsmouth but returned as part of the club's coaching staff in 2008 under manager Harry Redknapp.
Sherwood was working as technical co-ordinator when chairman Levy asked him to look after the first team following the departure of Villas-Boas. The Portuguese, 36, left the club after winning only two of his last seven league games in charge. Continue
"We were extremely reluctant to make a change mid-season, but felt we had to do so in the club's best interests," added Levy. "We have a great squad and we owe them a head coach who will bring out the best in them and allow them to flourish and enjoy a strong, exciting finish to the season. "We are in the fortunate position of having within our club a talented coach in Tim Sherwood."
Sherwood has no previous managerial experience, but Spurs rejected an approach by Championship side Blackburn in October 2012 for him to become their boss.
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