The Bosnian takes over the reins from Javier Aguirre, who departed last month after Japan's exit from the Asian Cup, amid match-fixing allegations from his time in charge of Real Zaragoza.
Halilhodzic led Algeria to the second round of the World Cup in Brazil last year, before they were beaten 2-1 in extra-time by eventual champions Germany.
There were widespread rumours last week that Halilhodzic would be appointed, and on Thursday the decision was finally confirmed.
Former Swansea City manager Michael Laudrup had been linked with the job, as had ex Zenit boss Luciano Spalletti, but Halilhodzic has been given the nod and is expected to arrive in Japan on Friday.
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