Hodgson will oversee the club's first day of pre-season training on Thursday before being unveiled to the media.
"This is the biggest job in club football and I'm honoured to be taking on Britain's most successful football club," Hodgson told the club's website.
The 62-year-old joins from Fulham, where he took charge in December 2007 and guided to the Europa Cup final.
Hodgson succeeds Rafael Benitez, who left Liverpool by mutual consent at the start of June and is now manager of European champions Inter Milan.
The BBC understands Fulham hope to have a successor in place for their pre-season training camp in mid-July.
Hodgson had two spells at the San Siro as Inter boss, one of 12 clubs he has taken charge of in six countries in a 34-year management career, as well as three national teams.
"I'd like to think I've earned this job," added Hodgson. My career shows that kudos is not something I've actively sought but this job carries that with it, and enormous responsibility, and I'm ready to take it on."
Club captain Steven Gerrard believes Hodgson's extensive experience in Europe make him the "right man for Liverpool".
"I think it's been worth the wait and I'm sure he's just keen now to get on with it and start to quickly put in place his plans for the new season," said the 30-year-old.
One of Hodgson's first priorities is securing the futures of Gerrard, star striker Fernando Torres and midfielder Javier Mascherano.
All three players, who have been linked with big-money moves away from Anfield, are vital to Liverpool's hopes of resuscitating their Champions League ambitions having missed out on a place in next season's competition after finishing seventh in the Premier League.
And Liverpool chairman Martin Broughton assured Hodgson he would not have to offload players to service the club's huge debts of about £350m.
"Players are not for sale," Broughton told the news conference. "We don't need the money and we don't have to sell them because of the debt."
Hodgson, who is not allowed to sign Fulham players as part of his severance deal with the London club, added: "I don't think there's anybody here at the club who would welcome losing them.
"I'll be trying to persuade them that this is the place to be. I'll ask them to give me a chance to work with you and give us a chance to improve on last season.
"They're all disappointed, I'm sure, after last season's results and I'll be doing my level best. It would be foolish to give guarantees that it's going to happen because I can't speak for the players themselves, but I'll be doing my best to keep them."
Hodgson's exploits with Fulham last season, which included wins over Juventus and Wolfsburg en route to a 2-1 Europa Cup final defeat by Atletico Madrid in Hamburg, earned him the League Managers' Association manager of the year award in May.
In his first full season he took Fulham to seventh in the Premier League, their highest finish and a place in the Europa League.
Liverpool moved quickly after Hodgson was linked with the England managerial job after the team's World Cup failure.
Hodgson has extensive domestic and international managerial experience across Europe, including spells in charge of Blackburn Rovers and Switzerland, who he guided to the last 16 of the 1994 World Cup.
After this period of uncertainty, his appointment has given us all a lift Jamie Carragher. |
But it is thought that Hodgson was always the club's preferred candidate.
His departure is a bitter blow for Fulham, with whom Hodgson signed a 12-month rolling contract in December last year.
Hodgson arrived at Craven Cottage in December 2007 after the sacking of Lawrie Sanchez, guiding the club clear of relegation in his first season back in the Premier League.
He then forged a competitive unit with astute signings like Norway defender Brede Hangeland, Australia goalkeeper Mark Schwarzer and Hungary midfielder Zoltan Gera.
"The club would like to wish Roy the very best for the future and thanks him for all that was achieved during his tenure," read a club statement.
"(Assistant manager) Ray Lewington will take temporary charge of team matters, until a successor is announced in due course."
HODGSON'S MANAGERIAL CAREER 1976-1980 Halmstad (Swe) 1982 Bristol City 1983-1985 Örebro (Swe) 1985-1990 Malmö FF (Swe) 1990-1992 Neuchâtel (Swi) 1992-1995 Switzerland 1995-1997 Inter Milan (Ita) 1997-1998 Blackburn Rovers 1999 Inter Milan (Ita) 1999-2000 Grasshopper (Swi) 2000-2001 Copenhagen (Den) 2001 Udinese (Ita) 2002-2004 United Arab Emirates 2004-2005 Viking (Nor) 2006-2007 Finland 2007-2010 Fulham 2010 - Liverpool |
The American pair's ownership of the Reds has been a long-running source of discontent for many fans, who are unhappy with the way the club is being run, and there have been regular protests and public disputes.
However, Hodgson has been promised funds to bring in new players if any players leave Anfield in the coming weeks.
"One thing they made clear to me is we have to work within whatever restraints are in place at the club, but they've also made clear that if we were unfortunate to lose somebody then that money would be made available," he added.
"I'm hoping that won't be the case because I don't want to lose anybody, but we haven't gone much further than that.
"I'm sure that during the course of the day, when I've spoken to the players, there will be meetings and discussions along those avenues as well.
"I'm anxious to meet two key players (Gerrard and England defender Jamie Carragher) and hear how they feel about the club.
"I took the job because I wanted to be manager and work with the players, benefit from the fan base and incredible support.
"Each club has it's problems and issues and as a coach you are expected to sort them out. I can't deny it's not an easy one."
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