The Spaniard succeeds Marco Silva, who ended a five-year spell at Craven Cottage earlier this summer to take charge at Benfica. Arbeloa's first task will be a baptism of fire against his former Real Madrid side's new boss Xabi Alonso, with Fulham opening their Premier League campaign away to Alonso's Chelsea on August 24.
"It is a real honour for me to be embarking on this new stage at Fulham FC, the oldest club in London," Arbeloa said. "I feel a great sense of responsibility and I'm deeply grateful to Mr. Khan and Tony Khan for the trust they have placed in me with Fulham in the Premier League.
"I am really looking forward to experiencing the atmosphere at Craven Cottage with Fulham fans and beginning pre-season with the players next week. I am sure we are going to enjoy an incredible journey together. Come on Fulham!"
Arbeloa arrives having spent his entire coaching career to date within Real Madrid's academy structure, guiding the Under-14s to a league title before climbing through the Under-16s, Under-19s and Castilla, the club's B side, where he replaced Raul. A treble followed with the 19s, and he took the reins of the first team this year following Alonso's own departure, leading Los Blancos to a second-place La Liga finish and a memorable Champions League run that included a 5-1 aggregate victory over Manchester City.
Owner Shahid Khan explained the thinking behind the appointment.
"Alvaro was an original candidate who built an exceptional case through our meetings in June to become our next Head Coach, and it quickly became quite clear that he was – and is – the right choice," Khan said. "Alvaro is, by his own admission, very ambitious. He has spent quality time around the best players, clubs and methods in the game, experiences which will serve him well here at Fulham. Alvaro also has great interest in our Academy set-up and believes in giving young players a chance. I loved hearing that from Alvaro, as well as his intent on playing attacking football."
Vice-chairman Tony Khan was equally enthusiastic.
"I'm thrilled to welcome Alvaro Arbeloa as Fulham's Head Coach! Alvaro is highly intelligent with a profound knowledge of the sport, a very strong work ethic, and he is determined to succeed at Fulham. I'm excited and looking forward to a bright future for the Club under Alvaro's tremendous leadership! Come on Fulham!"
As a player, Arbeloa won two Champions Leagues and two Copa del Reys among eight major trophies at Real Madrid, either side of a spell at Liverpool that yielded a Champions League final appearance. He also won the World Cup and two European Championships with Spain, and had a brief stint in England with West Ham before retiring at 34.