Jones, who has been out of work since last February when he was sacked by Southampton, held talks with the club this week and has now become their 15th permanent boss in a decade.
He said: "I am extremely excited by the challenge in front of me at Charlton. It is a club that I have fond memories of from my time here and I want to play my part in moving the club forward.
“I have been approached by a number of clubs to get back into management but I have been waiting for the right opportunity. From my conversations with the Board and given the long-term nature of the contract, I can see there is a real appetite to build something here which I am really looking forward to being a part of.”
Michael Appleton was dismissed last week following 10 matches without a win, which left Charlton close to the League One drop zone.
Jones began his coaching career at Charlton, joining as an Under-21 coach in 2012, shortly after his retirement as a player.
He has since managed Luton (twice) and Stoke as well as the Saints. He earned Luton promotion from League Two and guided them into the Championship play-offs in 2021-22.
Interim boss Curtis Jones took charge of the 1-1 draw at Blackpool at the weekend Saturday's 1-0 home loss to Derby.