Grayson succeeds Graham Westley in the Deepdale hot-seat after the ex-Stevenage manager stepped down to end an unsuccessful 13 months at the helm last week, having won just once in League One since November.
North End bounced back to defeat leaders Bournemouth 2-0 at the weekend under the guidance of caretaker John Dreyer, but lie 17th in the table, eight points above fourth-bottom Oldham, who have a game in hand.
Grayson was dismissed from his post at Huddersfield in last month, despite securing promotion to the Championship last season via the play-offs.
He also lifted Leeds out of the third tier during his time at Elland Road, having accomplished the same feat during his first managerial assignment at Blackpool.
Grayson will be assisted by Glynn Snodin, who was his right-hand man at both Leeds and Huddersfield.
Dreyer, who arrived in Lancashire as Westley's assistant in January last year, has been retained as part of the backroom staff.
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