The Italian has spent 17 years coaching in his homeland at clubs including Siena, Palermo and Chievo Verona.
Sannino takes up his post immediately and will be joined by assistant coaches Francesco Troise, Giovanni Cusatis and Paolo De Toffol.
The 55-year-old takes over the Vicarage Road reins from compatriot Gianfranco Zola, who resigned on Monday after a run of five successive home defeats.
His first match in charge will be Saturday's Championship match against Ipswich at Portman Road and the Hornets then have home fixtures against Millwall and QPR.
Watford's owners, the Pozzo family, are Italian, and the club retained strong links with the country during Zola's tenure, loaning a host of players from Serie A team Udinese last season, a campaign which culminated in a defeat to Crystal Palace in the play-off final at Wembley.
Sannino has revealed in the Italian press that he jumped at the chance to take the job, and he is now looking forward to his first match in charge against Ipswich.
He told tuttomercatoweb.com: "It was important for me to come back. This call came and I immediately said yes.
"London is a city where everyone would like to work and live. Zola did a good job with these guys.
"The presence of the Italian players? I am the coach of Watford, not of the Italian players. I'm already starting to settle into the environment and on Saturday we have the first challenge of the season."