The former Crystal Palace boss, who left Selhurst Park in October, has agreed a two-and-a-half year contract.
Holloway, 50, replaces Steve Lomas who was axed last month after winning just five out of 22 games.
The Lions are only one point and one place above the Championship relegation zone and crashed out of the FA Cup 4-1 at League Two Southend on Saturday.
A club statement read: "Millwall Football Club can confirm that terms have been agreed with Ian Holloway for him to become new manager following the departure of Steve Lomas on Boxing Day.
"Ollie is set to take up his new position this week and will be in charge of the team for the Championship fixture at Huddersfield Town on Saturday."
Holloway makes a swift return to south London having guided Palace to promotion via the play-offs last season before leaving by mutual consent with the Eagles struggling at the foot of the Premier League.
He previously took Blackpool to promotion in 2010 and has also managed Bristol Rovers, QPR, Plymouth and Leicester.
Millwall announced the news on their Twitter page.
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- Millwall Football Club
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- Steve Lomas