The Championship outfit sacked previous boss Nigel Adkins on Monday after a 6-1 humiliation at the hands of Birmingham City at the weekend left them 16th in the table.
Former West Brom chief Clarke is the man who has been chosen to take the club forward, and the Scot is relishing the challenge that lies ahead.
"I am absolutely delighted to be joining Reading football club and I look forward to helping the club move in the right direction," he said. "A big part of the work ahead is on the training ground and I look forward to meeting the players and getting onto the grass with them.
"There is real potential here and hopefully exciting times ahead for the supporters."
Clarke worked extensively as an assistant at the likes of Newcastle United, Chelsea and Liverpool before his stint in charge at The Hawthorns, and Reading co-chairman John Madejski is looking forward to tapping into the 51-year-old's experience.
"I would like to wholeheartedly welcome Steve to Reading football club and wish him every success here," he said. "He comes with a CV of the very highest order and I look forward to moving back up the table with him in charge.
"It has been a difficult period for all concerned, but now we can look forwards.
"Nigel Adkins worked tirelessly to achieve success, sadly it did not work out for him but we wish him, his family and staff well for the future.
"Now we look forward to a new era under Steve’s stewardship and I, for one, am excited about this new beginning."
Clarke will be in charge for Reading's home clash with Watford on Saturday.
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