The 50-year-old Spaniard moves to the Hawthorns as a permanent replacement for Steve Clarke, who was sacked last month.
Mel's most recent job was with Real Betis, who dispensed of his services on December 2.
Mel's greatest crime in Andalusia was to fail to live up to the success of last season, with a seventh-placed finish earning them a Europa League spot.
A heavy 4-0 loss to rivals Sevilla essentially saw him off but he has been out of work for less than six weeks, with Albion identifying him as the man they wanted.
Sporting and technical director Richard Garlick said on the club's official website: "I'm delighted to welcome Pepe to the club.
"His appointment concludes an extensive recruitment process during which we have cast the net far and wide to identify the most suitable candidate to take the club forward.
"Pepe was a strong contender from the outset due to his impressive achievements and has emerged as our number one candidate.
"He is a forward thinking coach whose teams are renowned for playing an attractive and positive style of football."
Keith Downing and Dean Kiely, who have led the Baggies with some credit for the five games since Clarke's departure, are to assist Mel, whose coaching CV also lists the likes of Alaves and Getafe.
The pair will be on the touchline against Southampton this weekend, with Mel in the stands.
Garlick added: "The Board is extremely grateful to Keith, the coaching staff and players for their efforts over the past month, which has yielded six points from four unbeaten league games.
"Keith will have an important role to play in supporting Pepe as he coaches in England for the first time."
Mel takes over a side out of the FA Cup and League Cup and 14th in the Premier League, some four points off the drop zone.
"Pepe Mel is one of the most valued coaches in Spain, despite being fired last year. Betis created more attacking chances than many La Liga teams in the first months of the season, and their bad results were only caused because of their lack of experience (there were so many signings last summer and it made unstable the team).
While he was coaching Betis he used to play a 4-2-3-1 system, with one of the best strikers of La Liga (Rubén Castro), moved to the left flank. He doesn’t mind to give chances to young players if they are talented –Álvaro Vadillo made his debut when he was 16, the youngest in Betis history.
Mel’s personality is quite friendly with players and journalists. He is very demanding, but it is really hard to find a player who doesn’t support him. His rating in the Spanish media is high, as he is an unusual character.
As a curiosity, he uses his leisure time to write –he published a book recently and it is known that he is writing another one.
His arrival to the Premier League is considered as deserved reward from him by people in Spain. His previous seasons at Rayo Vallecano and Betis showed he is a coach of some quality."