The 47-year-old former Great Britain stand-off was unveiled at a news conference at the club on Tuesday morning as the successor to Ian Millward.
Castleford chief executive Steve Gill said: "We have taken our time over the appointment of a new head coach because we wanted to ensure that we brought the right man on board and I'm convinced that Daryl Powell is that man."
Powell is returning to Super League after an absence of almost 10 years.
After bringing his illustrious playing career to a close, Powell joined the Leeds backroom staff and was appointed as head coach of the Rhinos in April 2001 as the successor to the disappointing Dean Lance.
But the promotion came early in his career and within two years he was making way for the arrival of Tony Smith, with the promise of Leeds chief executive Gary Hetherington that he would be given the opportunity to widen his experience in readiness for his return one day.
Instead, Powell went on to coach the Rhinos' sister rugby union club, Leeds Tykes, before joining Featherstone in 2008 and enjoying widespread success with the part-timers.
Rovers finished top of the Championship in each of his four seasons in charge and, after guiding them to Grand Final success in 2011, he masterminded a Challenge Cup victory over Castleford last season.
Powell has also coached Ireland and worked as an assistant to England head coach Steve McNamara to complete a comprehensive apprenticeship.