The Premier League club have promoted their former midfield player from his role as youth development manager to replace Andre Villas-Boas, 36, exactly a week after the Portuguese coach was sacked following a humiliating 5-0 home loss to Liverpool.
"We were extremely reluctant to make a change mid-season, but felt we had to do so in the club's best interests," chairman Daniel Levy said on the club website (www.tottenhamhotspur.com).
"We have a great squad and we owe them a head coach who will bring out the best in them and allow them to flourish and enjoy a strong, exciting finish to the season.
"We are in the fortunate position of having within our club a talented coach in Tim Sherwood. We believe Tim has both the knowledge and the drive to take the squad forward."
A technically highly-rated coach, the 44-year-old Sherwood won the Premier League as captain of Blackburn Rovers in 1995 before joining Spurs four years later and staying until 2003 before returning five years later to join the coaching staff.
Sherwood was brought back to the club by former Tottenham Hotspur F.C. manager Harry Redknapp who said this week: "...let's hope Tim can get the job, he has great knowledge of the game. They have got a boy on their books who knows the game inside out."
Sherwood takes over a team on which Spurs spent more than the 100 million euros ($137.07 million) they got for Gareth Bale from Real Madrid in the close season on internationals like Roberto Soldado, Paulinho, Erik Lamela and Christian Eriksen.
Chairman Levy is known to be short on patience, having sacked seven manager's during his time at the club, but Sherwood will hope his brand of attacking football can deliver a top-four finish and a place in next season's Champions League.
That was the minimum requirement that eluded Villas-Boas with the former Chelsea and Porto manager losing his job despite taking Spurs to their record Premier League points tally last term when they came fifth and missed out on Europe's top table.
The Portuguese, who took over in July 2012, had been under pressure after a 6-0 thrashing at Manchester City last month following a 3-0 home reverse by West Ham United, who again won at White Hart lane in the League Cup quarter-final last week.
The disappointing 2-1 Cup exit was Sherwood's first game as interim head coach but he engineered a 3-2 win at Southampton on Sunday to leave Tottenham Hotspur F.C. seventh in the standings, six points off leaders Liverpool and north London rivals Arsenal.
That result helped his claims to be given the top job on a permanent basis and Sherwood, a combative midfielder who played nearly 100 games for the club before joining Portsmouth, now has a chance to show what he can do in his first job as head coach.
Spurs scored three league goals for the first time this season at Southampton and Sherwood said: "I like to set teams up like that (to attack). There are no rules, there are different ways to win a football match. You have to do what you believe."
His former Tottenham Hotspur F.C. team mates, Les Ferdinand and Steffen Freund, plus Chris Ramsey, are in a new first-team set which should find favour with the club's demanding supporters who grew frustrated with the negative tactics adopted by Villas-Boas.