Appleton becomes Rovers' third boss this season despite only taking up the reins at their Championship counterparts two months ago.
The 37-year-old former Manchester United and Preston midfielder, who began the season in charge of League One Portsmouth, has agreed a two-and-a-half-year deal at Ewood Park. Ashley Westwood, first-team coach under Appleton at both of his previous two clubs, will join him as assistant.
In a statement released by Blackburn, Appleton said: "I am delighted to be joining such an historic club. This is a fantastic opportunity for me and I am excited about the challenge we have ahead of us. I can't wait to start working with what is a very talented group of players.
"I'd like to thank everyone at Blackpool for their efforts during my time there and the chairman for allowing me to come here. I wish them all the best for the future."
Appleton won two and drew seven of 11 league games in charge of Blackpool, with his final victory a 2-0 triumph over Blackburn at Bloomfield Road on December 15.
Hours before the appointment was confirmed by Blackburn, Blackpool chairman Karl Oyston dismissed the notion that a fall-out caused his manager's departure amid reports of Appleton's discontent over transfer policy.
"There's been no big bust-up as some people would like to imagine," he told Sky Sports News.
"What we told Michael when we first saw him and interviewed him, Matt Williams (Blackpool's club secretary) and myself, is exactly what we were doing in practice.
"So, no change and no upheaval. Michael's just had a better offer and understandably wanted to grab that better offer."
Indian-owned Rovers, Premier League champions in 1995 but relegated from the top flight last season, sacked Henning Berg last month after 57 days.
Blackburn are 13th in the Championship, one place above north west rivals Blackpool who were in the Premier League two years ago.
Both clubs have seen long-running supporter unrest towards their respective owners while Blackpool fans on internet message boards slammed former Portsmouth boss Appleton for a perceived lack of loyalty after such a short stint in charge.