Chelsea boss Jose Mourinho values Belgium playmaker Eden Hazard at £200m after reported interest from Real Madrid.
Alan Pardew is weighing up chasing a big-name summer signing to boost Crystal Palace's profile.
Former Magpies midfielder Derry will be assisted by experienced ex-Carlisle boss Greg Abbott and the duo will take charge with immediate effect, preparing the team for this weekend's FA Cup first-round tie against Hartlepool at Victoria Park.
Derry replaces Chris Kiwomya, who left by mutual consent on October 27 after 10 defeats in 13 Sky Bet League 1 matches left the club bottom of the table.
"When we, as a board, sat down to identify the credentials that we were looking for in our next manager, we were agreed that we needed someone who understood this club and what it means to our fans," said Notts County chairman Ray Trew.
"What Shaun has achieved as a player, coupled with the leadership that he has shown throughout his career, make him the ideal candidate for a managerial role and he made it clear that he wanted that role to be with his hometown club.
"There are question marks over his credentials, simply because this will be his first managerial role, I know that, but there are doubts with every managerial appointment and we, as a board, have to put our faith in who we think is the right man for the job."
The 35-year-old, who was part of County's Division Three title-winning team in 1998, was still under contract as a player at QPR until next summer and was on loan at Rangers' Championship rivals Millwall, where he was scheduled to remain until January 1.