The 47-year-old Blanc, out of a job since departing as France coach after their Euro 2012 quarter-final exit, led Girondins Bordeaux to the French title in 2009.
"Paris Saint-Germain is delighted to announce the appointment of Laurent Blanc as coach for the next two years," PSG said in a statement.
Blanc, who played for Montpellier, Marseille, Manchester United, Barcelona and Inter Milan, was part of France's World Cup-winning squad in 1998 and won the last of his 97 caps in the 2000 European Championship final victory against Italy.
But he was not PSG's first choice, according to media reports.
Blanc, whose European coaching experience is limited to two seasons with Bordeaux, will have to deal with QSI's high expectations.
"The mission Paris Saint-Germain's management has assigned Laurent Blanc is to continue the work initiated last year and lead the team towards the European heights," the statement said.
The Frenchman, who earned the nickname "The President" during his playing days, will also have to prove he can handle a squad full of characters after failing to keep France's bad-tempered players under control at the European Championship.
"Laurent Blanc can't be a wrong choice. He was France coach, he's equal to all the names that have been cited. They are all great coaches," Silva's agent Paulo Tonietto told French weekly Le Journal du Dimanche.
