In a statement, the club said: "Chelsea Football Club is delighted to announce the appointment of Xabi Alonso as Manager of the Men’s Team.
"The Spaniard will begin his role on July 1st, 2026, having agreed a four-year contract at Stamford Bridge."
"His appointment reflects the Club’s belief in his broad set of experiences, coaching quality and game model, leadership attributes, character and integrity, which were key to the decision to ask him to help lead the next phase of Chelsea’s journey.
"He is regarded not only as an outstanding football coach, but also as a proven leader and partner across a number of areas essential to the demands of driving the team."
Alonso, a former Premier League player with Liverpool, will become the fifth permanent manager under Todd Boehly's reign at the Bridge, coming in after Liam Rosenior was sacked earlier this season.
Despite great success and trophies at Bayer Leverkusen, Alonso struggled to make his mark at Real Madrid after joining them last summer. Rumours of disharmony over his methods at the Bernabeu saw him sent packing back in January after losing the Supercopa de Espana to Barcelona.
However, his stock never fell following that departure, and Chelsea have acted fast to bring him into the club, despite strong links suggesting he could have been in line to replace the struggling Arne Slot at his former club, Liverpool.
Speaking about his appointment, Alonso told the official club website: "Chelsea are one of the biggest clubs in world football, and it fills me with immense pride to become manager of this great club.
"From my conversations with the ownership group and sporting leadership, it is clear we share the same ambition. We want to build a team capable of competing consistently at the highest level and fighting for trophies.
"There is great talent in the squad and huge potential at this football club, and it will be my great honour to lead it. Now the focus is on hard work, building the right culture and winning trophies."
Chelsea are currently ninth in the Premier League standings with two games to go this season, and are at risk of missing out on European football next season.
On Saturday, they lost the FA Cup final to Manchester City, and they are back in action on Tuesday night when they take on London rivals Tottenham Hotspur.