The 44-year-old replaces Micky Adams in the Prenton Park hotseat following the club’s relegation from Sky Bet League Two to the Conference.
Adams, who took charge in October, was shown the door with two games of the season remaining with his No 2 Alan Rogers and academy boss Shaun Garnett taking over on a temporary basis.
However, the duo were unable to lift Tranmere off the bottom of the table and they will now embark on life in non-league football with Brabin, who has plenty of experience at non-league level, at the helm.
Brabin, a former midfielder, started his managerial career with Southport in 2008, achieving immediate success by guiding them into the play-offs, before joining Cambridge United.
At Cambridge he got the club to the play-off finals in his first season in charge before being voted Conference Manager of the Year in 2009.
The following season he joined Luton Town initially as chief scout, then as assistant manager, and in 2011 was appointed manager following the departure of Richard Money.
In his first year in charge at Luton, they reached the play-off final, but were defeated on penalties and he left Kenilworth Road the following season.
In 2014 he re-joined Southport, but was tempted away by Everton in January to take up a coaching role in the academy which he has now left.
Brabin said: “I have gone on record in the past as saying that the role I was doing at Everton was my dream job, and I did not think that anything would tempt me into leaving there.
“I have had approaches from other clubs and declined them, but the Tranmere job is special.
“The chance to lead one of the three famous old Merseyside clubs back to where it belongs in the League is a fantastic challenge that is hard to resist.”
Tranmere chairman Mark Palios added: “Gary is a manager with a strong win rate (over 48 per cent) and a fantastic track record of getting his clubs into the Conference play-offs.
“The job requires a strong character and someone who knows what the weight of expectation of managing a larger club in the Conference feels like. Gary has done this at both Cambridge and Luton.”