Holloway, who had been out of work since leaving Premier League strugglers Crystal Palace in October, succeeds Steve Lomas at The New Den.
Lomas was dismissed on December 26 following a 4-0 defeat to Watford, and Millwall currently lie 21st in England's second-tier, one point above the relegation zone.
A statement on the club's official website 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 has plenty of experience in the Championship, managing the likes of Queens Park Rangers, Leicester City and Blackpool in the division over recent years.
He got the latter promoted to the Premier League via the play-offs and achieved the same with Palace last season before leaving, stating he was "tired" and "worn out".
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