O'Neil, 43, arrives from Strasbourg, where he led the French club to an eighth-place finish in Ligue 1 and the semi-finals of the Europa Conference League — the first time in the club's history they had reached the last four of a European competition.
He will be joined at Portman Road by backroom staff Tim Jenkins, Neil Critchley and Ed Ames, all of whom worked alongside him in France.
The appointment makes O'Neil the 20th permanent manager in Ipswich's 90-year professional history. He faces the task of keeping the club in the Premier League for back-to-back seasons for the first time since 2001-02, following their relegation from the top flight the season before last.
O'Neil previously managed Bournemouth and Wolverhampton Wanderers in the Premier League, securing 15th and 14th-place finishes in his first campaigns at each club respectively. Before entering management, he made more than 200 Premier League appearances as a player for clubs including Portsmouth, West Ham United and Middlesbrough.
He began coaching six years ago in the Liverpool academy before joining Scott Parker's staff at Bournemouth in 2021, where he helped the Cherries win promotion from the Championship.
"It is an honour to be appointed Manager of this great football club," O'Neil said.
"I have followed the progress the club has made over the last few years closely and to now have the opportunity to lead Ipswich Town in the Premier League is something I am hugely excited by.
"There is a strong vision and ambition at this club and I am fully aware of the responsibility that brings, given how much it means to its supporters and to the community of Ipswich and Suffolk.
"We all know the challenge ahead as we prepare for the season together and I'm excited to meet everyone and get to work."
Chairman Mark Ashton said O'Neil had been in the club's sights for some time.
"He is a manager who has been on our radar for some time and, following a thorough and robust process, during which we met with a wide range of candidates, it became clear he was the leading candidate for the position.
"He is highly motivated, highly regarded, has an incredible attention to detail and tactical knowledge and is an excellent coach with a real track record of improving players.
"Despite being just a few years into his managerial career, he has already shown he knows what is required to succeed in the Premier League at both Bournemouth and Wolves, while also leading Strasbourg to a European semi-final last season. He brings a hunger and desire to succeed at the top level of the game and, with the full support of everyone at the club, I am excited to see what we can achieve together."