Schallibaum, who was at the helm of five different clubs in the Swiss first division over his coaching career, takes over a Montreal team that finished 7th out of 10 teams in the Eastern Conference and missed out on the playoffs in their first season in the North American league.
"The club is passionate about the game, like me, and is made up of people who are passionate as well and who want to go in the same direction," Schallibaum, 50, said in a statement released by the team.
Schallibaum had a 15-year playing career in the Swiss top flight from 1980-1995 before managing for nearly a decade with stints at Basel, Young Boys, Servette and Sion.
He replaces American Jesse Marsch, who parted ways with the Impact last November.
The Impact have former Italy internationals Alessandro Nesta and Marco Di Vaio on their squad.