Clough, the 47-year-old son of former Derby and Nottingham Forest manager Brian, takes over immediately at the club, who were relegated from the Premier League six years ago.
Capped 14 times by England, Clough played under his father for Nottingham Forest before spells at Liverpool and Manchester City and was manager at Championship (second-tier) side Derby County until he was sacked last month.
"We count ourselves lucky to have Nigel aboard," Sheffield co-chairman Prince Abdullah bin Mosaad bin Abdulaziz Al Saud said on the club website (www.sufc.co.uk).
"He knows how to inspire first-team players to give their all and has a proven track record of making an academy a key ingredient to the club's success."
- Sports & Recreation
- Derby County
- Nottingham Forest