The Frenchman joins Real Madrid after just 10 months leaving the Spanish giants due to run of unimpressive performance from the team.
The 46 year old only left in May after leading the club to a third straight Champions League trophy.
Real are currently third in La Liga, 12 points behind leaders Barcelona.
Solari was sacked after a 4-1 win over Real Valladolid on Sunday which followed a shock Champions League exit to Ajax.
That 4-1 home defeat and 5-3 aggregate loss to the Dutch side was the final straw for Real president Florentino Perez.