Current coach Marcello Lippi had never publicly said he was leaving after this summer's tournament and conflicting signals from the World Cup winner and Italian football federation president Giancarlo Abete prompted an array of rumours.
Abete wanted a solution before the team flew off to South Africa and has finally now found his man.
"Prandelli will be coach for four years," a federation spokesman said. "Prandelli will be officially presented as Italy's coach after the World Cup," the spokesman added, saying that financial details and the composition of Prandelli's backroom staff had yet to be determined.
The 52-year-old has been front-runner for the Italy job with the bookmakers for months after guiding the Florence club to the Champions League last 16 last season against the odds - knocking Liverpool out of the competition in the process.
Lippi, who stepped down after their 2006 World Cup triumph before returning to the job after a poor Euro 2008 under Roberto Donadoni, welcomed the appointment.
"The federation has found the right person. I had said to Abete at Christmas that I would do my two years and then stop," he told reporters.
CLEAR FAVOURITE
Prandelli also notably managed Parma and AS Roma for a brief spell before leaving to care for his sick wife who later died.
Abete had said any replacement for Lippi would be Italian but his options were limited given Chelsea's Carlo Ancelotti, Manchester City's Roberto Mancini and Roma's Claudio Ranieri, who had all previously expressed interest in the job, have only just completed their first seasons with their clubs.
That left Prandelli as frontrunner despite Fiorentina enduring a poor campaign in Serie A where they finished 11th.
The fans blamed the team's slump on their good European run, a drugs ban for striker Adrian Mutu and tensions between Prandelli and the club's board.
Prandelli, famed for his slicked-back hair and purple puffer jacket, had been seen in the media as a candidate for the Juventus job before the faltering Turin side chose former Sampdoria boss Luigi Del Neri.
Fiorentina acknowledged earlier this month that Prandelli was likely to take the Italy job and have held talks with Sinisa Mihajlovic, who quit as Catania boss last week.
Italy are preparing for the World Cup and South Africa's altitude at a training camp in the Italian Alpine ski resort of Sestriere.
The world champions, in Group F with Paraguay, New Zealand and Slovakia, are only outside bets to repeat their 2006 success because of an ageing team and recent uninspired performances.
Prandelli's major task in the Euro 2012 qualifiers starting in September will be to find the right balance between the new generation of emerging talent and the experienced heads who performed so well in Germany four years ago.
