The 48-year-old was dismissed by Southampton in January after a three-year stint at St Mary's but takes over the Berkshire hotseat ahead of Saturday's crucial Premier League match at Arsenal.
Adkins will be assisted at the Madejski Stadium by Andy Crosby, his No 2 at Saints, and Reading owner Anton Zingarevich said: "I am delighted to bring Nigel to our club because he is perfect for us.
"He has great respect within the game, his CV speaks for itself and he has many attributes as a manager, he is progressive, he develops players, his teams play attacking, passing football but most of all he knows how to win games at all levels.
"This is an appointment we have made both with the short and long term in mind and Nigel can take our club forward.
"I know our supporters have been keen to hear news over the past two weeks and I am certain they will join me in saying it was worth the wait. I wish Nigel and Andy nothing but good luck and now we focus on eight hugely important games in the Premier League.
"Our supporters will also play a vital part in the finale to the season and I am certain Nigel will get an excellent reception from our fans at the Emirates on Saturday."
The Royals sacked Brian McDermott two weeks ago - just 33 days after he was named manager of the month - with Academy director Eamonn Dolan taking charge.
With just eight league games remaining Reading face a desperate fight against relegation - in 19th place and seven points adrift of safety.
Adkins will take the club to the Emirates ahead of a crucial relegation fixture against his former club Southampton on April 6.
Former Swindon boss Paolo Di Canio had been linked to the post, as well as Roberto Di Matteo, while Brighton's Gus Poyet turned down the job last week.
Reading is Adkins's third professional club, having started out as a physiotherapist with Scunthorpe.
He became manager in 2006 after serving the Iron as their physio for 10 years and twice got them promoted from League One to the Championship.