Koeman said he would not be bound by the long-standing Dutch dogma of playing a 4-3-3 system.
The KNVB have been looking for a new head coach since Dick Advocaat stepped down from the position in November after failing to reach the World Cup.
"Koeman has just signed a contract that ties him to Oranje with immediate effect up to and including the 2022 World Cup".
On Twitter, he wrote: "I am proud to finally announce that I am the new manager of the Dutch national team".
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Koeman has been out of work since being sacked by Everton in October previous year after a surprisingly poor start to the Premier League season and will take his first role worldwide role since working as an assistant coach with the Dutch team in the late 1990s.
For a country with great worldwide pedigree-the Netherlands finished runners-up at the 2010 World Cup and in third place at Brazil 2014-Koeman will be eager to get them back to those great heights.
A legend with the Netherlands national team, Koeman was capped 78 times as a player and won the European Championship in 1988.
Under Hiddink and his successor Blind the Netherlands failed to qualify for Euro 2016 and under Blind and, after the latter's dismissal, under Advocaat the Dutch also didn't qualify for the 2018 World Cup.
Koeman's first game in charge will be a friendly against England in Amsterdam in March.