The second highest ranked American tennis star after Serena Williams made the appointment after a 'trial' in Los Angeles last month.
Annacone split from Roger Federer after 3 1/2 years together in October and has worked with Tim Henman in the past too.
However, he is most famous for being the long-time coach to multiple Grand Slam winner Pete Sampras.
"I'm happy to add Paul as my coach for the 2014 season," said Stephens, 20
Annacone said he was excited to work with a female player for the first time.
"That is a terrific opportunity," he told USA Today.
"I'm going to have to get comfortable with it and understand the dynamics.
"She's going to have to understand me."
"It's about buying into a philosophy which takes more than just being business partners," he said.
"Look, it's not like you're dealing with a 20-year-old kid that hasn't done anything. She's ranked 11 or 12 in the world. She knows how to be successful. Now it's about moving on from that foundation."
Stephens has yet to make a WTA Tour singles final but has reached four semi-finals.
In 2013 she was a semi-finalist at the Australian Open and also made the last eight at Wimbledon.