The 39-year-old guided St Johnstone to their highest-ever finish in the Scottish Premier League, third, this past season, but has now been tempted south by the Lions.
He replaces Kenny Jackett, who quit at the end of the season and has since taken over at Wolves.
Millwall chairman John Berylson told the club's website he was looking forward to starting work with the former Northern Ireland international.
"I was tremendously impressed with Steve," he said. "He has great passion and energy, knows a lot about Millwall as a club already, and this is a job he is genuinely hungry for.
"In some respects, following Kenny Jackett is a tall order, but Steve is very different from his predecessor, younger and with a fresh approach."
The former Manchester City and West Ham midfielder has the potential to prove a controversial appointment with Millwall fans given his close association with the Hammers, but Berylson expects him to win them over.
"I believe our fans will take to him, and to those who say we shouldn't have appointed a former captain of our biggest rivals, my response is, he has the desire to become a great Millwall manager," he said.
"He understands the rivalry and is keen to be judged over time on his commitment to our club and what he can help us achieve. From our point of view, we want the best man for the job, and we believe that man is Steve Lomas."
Lomas took over as St Johnstone boss in November 2011, having previously worked as reserve-team coach at West Ham.