The 57-year-old, known as 'Fabri', replaces Juan Roman Rocha, who stepped down from the post of head coach to return to his previous role as under-20 coach following a string of poor results.
Fabri is the cash-strapped club's third coach this season, after Rocha had replaced the sacked Portuguese Jesualdo Ferreira.
"Panathinaikos is turning over a new page today," the club said in a statement.
"We would like to remind people that in May 2012 Panathinaikos was threatened with bankruptcy due to debts and the inability to meet its financial obligations and was rescued at the last minute thanks to the intervention of the shareholders and the establishment of the Panathenaic Alliance by president Giannis Alafouzos.
"Now with new energy, new players and new protagonists, the club is turning the page in order to become once again a team to make its fans proud," the statement added.
Panathinaikos, Greek champions 20 times, have made a poor start to the season and are ninth after 16 matches, trailing arch-rivals, league leaders and champions Olympiacos by 22 points.
They failed to qualify from their Europa League group which included Lazio, Tottenham Hotspur and Maribor after picking up five points from their six matches.
Fabri has coached a plethora of top-flight and lower-league clubs in Spain and Portugal. His last job was at Racing Santander and he left the club last month.
Panathinaikos said there would be changes to their squad "in the coming days".
According to local media reports, the futures of Greek internationals Loukas Vintra and Lazaros Christodoulopoulos are in doubt.