Ancelotti secured a quick return to management - less than two weeks after being fired by Italian team Napoli - as the replacement for Marco Silva at Goodison Park.
A winner of league titles in Italy, England, France and Germany, and also three Champions League titles, Ancelotti will take over one of the most storied clubs in English soccer, but one that has not won a trophy since 1995 and is having its worst season in years.
Everton was 16th in the 20-team Premier League heading into this weekend, three points above the relegation zone, despite being one of the biggest spenders in Europe over the past 3½ years under ambitious majority shareholder Farhad Moshiri.
Ancelotti's glittering resume includes spells in charge of some of the giants of Europe, including Juventus, AC Milan, Chelsea, Real Madrid, Bayern Munich and Paris Saint-Germain. He is used to taking over already-established teams who compete for the biggest honors in the game and have only needed minor tweaking.
He faces a very different challenge at Everton, which secured the last of its nine English league titles in 1987. It is no longer regarded as one of the biggest teams in the country, but is striving to regain former luster under Moshiri with a new $650-million stadium being built on the banks of the River Mersey scheduled to be ready for the start of the 2023-24 season.
Ancelotti saw the scale of the task ahead of him when he attended the team's listless 0-0 Premier League draw against Arsenal on Saturday as a spectator, the game kicking off an hour after his appointment was announced. He took his seat in the directors' box between Moshiri and chairman Bill Kenwright, and was scheduled to meet Everton's players after the match.
"This is a great club with a rich history and a very passionate fan base," Ancelotti said. "There is a clear vision from the owner and the board to deliver success and trophies.
"That is something that appeals to me as a manager and I am thrilled at the prospect of being able to work with everybody at the club to help make that vision a reality."
It was in the corridors of Goodison Park where Ancelotti was fired by Chelsea an hour after the final game of the 2010-11 league season, having won the Premier League and FA Cup double with the London club the previous season.
Since then, he has won the French league with PSG, the Spanish league and Champions League with Real Madrid and the German league with Bayern. His previous two Champions League titles came with AC Milan , a team he managed from 2001-09 and successfully rebuilt into the best side in Europe.
In his most recent job, at Napoli, he led the team to a second-place finish behind Juventus in Serie A last season before being fired this month, halfway through his second year in charge.
Ancelotti has won 20 titles in his managerial career.
"He is the perfect appointment for us," Everton director of football Marcel Brands said. "He embraces our vision for the club and we are sure that his enthusiasm to take the helm at Goodison together with his tactical abilities and well-renowned man-management will make him successful in this role.
"This was a clear and exciting decision for the board to make. It was a unanimous choice and one we were all fully united behind throughout. Carlo has proven time and again, he knows how to build a trophy-winning side and we share the excitement of our fans at the prospect of him leading our team in the years ahead."
Everton had slipped into the relegation zone by the time Silva was fired two weeks ago. In the intervening period, caretaker manager Duncan Ferguson has led the team to five points from three unbeaten games and will be a part of Ancelotti's backroom staff.
"It's fantastic for the club for someone of that pedigree to come in," Ferguson said after the draw with Arsenal. "I haven't spoken to him yet but hopefully I will tonight over a couple of glasses of red wine."