Saunders takes over from Paul Cook who left Chesterfield earlier this week to join Portsmouth after taking the Spireites to the League One play-off semi-finals, where they lost 4-0 on aggregate to Preston on Sunday.
The 50-year-old ended the season as interim manager of Crawley Town, where he oversaw an improvement in the club’s results but was unable to prevent them from being relegated to League Two.
Saunders took charge of the club in December after John Gregory stepped down to undergo major open heart surgery.
Crawley’s relegation means Saunders has now taken a team down in three of the last four seasons after being in charge when Doncaster were relegated from the Championship in 2012 and being unable to save Wolves from the same fate the following year.
Saunders won eight of his 24 league games with Crawley but they were relegated on the last day of the season. Gregory announced on Saturday that he would not be returning to the club.
Despite relegation, the West Sussex club were keen for Saunders to remain as manager and talks were planned with Crawley chief executive Michael Dunford for later this week.
He was previously manager of Wrexham, Doncaster Rovers and Wolverhampton Wanderers and was first-team coach at Blackburn Rovers and Newcastle United under Graeme Souness. He also spent three years as Wales’ assistant-manager under John Toshack.
The holder of a UEFA Pro Licence, which is the highest coaching qualification available, Saunders had an illustrious playing career as a striker, starring for Liverpool, Aston Villa, Galatasaray and Benfica. He was also capped 75 times by Wales.
Chesterfield chief executive Chris Turner said in a statement on the club’s website: “When chairman Dave Allen and I met Dean, it was clear that he shared our vision for the future of the club.
“He has infectious enthusiasm for the job and he is in the enviable position of joining a club with solid foundations.”
Saunders said: “It is a great opportunity as this is a club on the rise, run by good people, and I am inheriting a very good team from Paul Cook.
“Taking over now gives me a full pre-season to make a fresh start, put my plans in place and work with the squad, which is a great position to be in.
“The profile of the club has been raised in the last few years and there has been an impressive increase in attendances so it is an exciting prospect and I can’t wait to get started.”
Under Cook, Chesterfield reached the Johnstone’s Paint Trophy final, won the League Two title and finished sixth in League One during his two-and-a-half years at the Proact Stadium.