The former Nottingham Forest manager has a wealth of experience at Championship level, guiding West brom to promotion on two occasions, in 2002 and again in 2004.
It is believed that Milan Mandaric had revised a list of four candidates for the role, including Neil Warnock and recent speculation also surrounded Kevin Keegan with the City job.
Talking of his appointment, a delighted Megson said: 'I am delighted to be back in football and am doubly delighted that I have returned to a team with the stature of Leicester City.
Gary Megson Claims City Crown
'This club has got ambitions to return to the Premiership and that appeals to me greatly.'
Megson's first game in charge comes on Saturday when The Walkers Stadium welcomes Queens Park Rangers. Megson will then take his squad to the hostile City Ground for the replay of the Carling Cup against Nottingham Forest.
Megson's first game in charge comes on Saturday when The Walkers Stadium welcomes Queens Park Rangers. Megson will then take his squad to the hostile City Ground for the replay of the Carling Cup against Nottingham Forest.