Appleton becomes Rovers' third boss this season despite only taking up the reins at Championship counterparts Blackpool two months ago.
The 37-year-old former Manchester United and Preston midfielder, who began the season in charge of League One Portsmouth, has agreed a two-and-a-half year deal at Ewood Park.
Ashley Westwood, first-team coach under Appleton at both of his previous two clubs, will join him as assistant.
In a statement released by Blackburn, Appleton said: "I am delighted to be joining such an historic club. This is a fantastic opportunity for me and I am excited about the challenge we have ahead of us.
"I can't wait to start working with what is a very talented group of players.
"I'd like to thank everyone at Blackpool for their efforts during my time there and the chairman for allowing me to come here. I wish them all the best for the future."
Rovers' managing director Derek Shaw said: "We are delighted to welcome both Michael and Ashley to the football club.
"They are both highly regarded within the game and we are confident that they have the drive and ambition to take this club forward.
"We will do everything in our powers to support them in our quest to make an instant return to the Premier League."
Hours before the appointment was confirmed by Blackburn, Blackpool chairman Karl Oyston dismissed the notion that a fall-out caused his manager's departure amid reports of Appleton's discontent over transfer policy.
"There's been no big bust-up as some people would like to imagine," he told Sky Sports News.
"What we told Michael when we first saw him and interviewed him, Matt Williams (Blackpool's club secretary) and myself, is exactly what we were doing in practice.
"So, no change and no upheaval. Michael's just had a better offer and understandably wanted to grab that better offer."
Appleton won two and drew seven of 11 league games in charge of Blackpool, with his final victory a 2-0 triumph over Blackburn at Bloomfield Road on December 15.
That proved to be the penultimate match of Henning Berg's 10-game stint as Steve Kean's successor, which was terminated 57 days and one win into a three-year contract.
Since then caretaker-manager Gary Bowyer has led the pre-season promotion favourites to three consecutive victories in all competitions and last week Blackburn announced their reserve-team boss would remain at the helm until the end of this month.
It became clear this was unlikely to be the case when Blackpool acknowledged a formal approach for Appleton's services from their Lancashire neighbours on Wednesday night, and a compensation package was agreed yesterday following discussions led by Oyston and Shaw, who took a prominent role in the recruitment process with outspoken global advisor Shebby Singh appearing marginalised.
Bowyer will take charge of Blackburn for the final time when they travel to Wolves this evening.
Victory would move Rovers four points clear of 14th-placed Blackpool, who travel to Charlton to start Steve Thompson's second spell in temporary charge this term - the first coming between Ian Holloway's departure to Crystal Palace and Appleton's arrival.
Rovers Trust co-chairman Wayne Wild believes the appointment of a relatively inexperienced manager is evidence of owners Venky's repeating the errors of the previous two years that ultimately led to Blackburn's relegation from the Barclays Premier League last May.
"Most supporters you speak to will say it's not an appointment they welcome," said Wild.
"Whether he turns out to be a good appointment, again, he's a gamble - you just don't know.
"It's not up to fans really to make statements about management decisions but it does show the incapability of the club's owners, even after two years, repeating the same mistakes.
"We know we wanted experience but for three managerial appointments on the bounce they've gone for an inexperienced manager."
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