A FIFA World Cup winner as a player in 1994, Dunga succeeds Luiz Felipe Scolari, who resigned in the wake of Brazil's failure at the prestigious tournament on home soil.
Dunga, who led Brazil to Copa America success in 2007 and Confederations Cup glory two years later, was far from positive as he was unveiled on Tuesday.
The 50-year-old said there was a lot of work to do for the five-time world champions, who were beaten 7-1 by eventual 2014 winners Germany in the semi-finals.
"I'm not going to sell a dream. It's reality. The reality is there is a lot of work needed. So when you create high expectations for the fans, football is unpredictable. Nothing is for sure," Dunga told reporters.
"You have to win every day, every second, every minute, and every time football is growing all over the world and more people are getting better and more competent. They are very engaged. There will be a lot of work too.
"We can't act like we're the best. No. We were the best, but we have to save this capability that we have.
"We have talent to do this, but we aren't humble enough to recognise that other national teams have worked very hard, for many years, to get where they are today and where they've got to, and we have to work very hard to be able to get back to where we once were, and to have the right to be within the best in the world."
