The 55-year-old former Tottenham boss has agreed an initial two-year contract with the option of a further 12 months.
Jol, who was sacked by Spurs in 2007, was linked with the Fulham role last year but Dutch club Ajax refused to release him from his post as head coach.
He has been out of work since quitting Ajax last December and said he was excited at returning to England.
"I am very happy to join Fulham football club, a wonderful traditional club," he told Fulham's website.
"It is a club with good, solid foundations and a great fan base.
"I remember coming here with Tottenham and I even think I played here when I was a player (he played for West Brom and Coventry). Craven Cottage is a real football stadium, I loved going to Fulham.
"I could have gone to other countries, but I was waiting for the opportunity to come back to England."
Jol said he had already discussed bolstering Fulham's squad this summer in a meeting with owner Mohammed Al Fayed.
"Yesterday we had a good conversation about players and where we can try to strengthen and get one or two quality players," he said.
Al Fayed, the multi-millionaire former owner of the Harrods department store, said Jol was the right man to lead the club into the future.
"He understands my vision for the club, and believes in what we are striving to achieve here," Al Fayed said.
"I know that he will dedicate himself to helping us move forward, and is with us for the long term, to help us build and progress.
"We have enjoyed three incredibly successful years, and my hopes and dreams for this club are for that journey to continue."
Hughes guided Fulham to an eighth-place finish in the just-completed season before quitting.
Although the Welshman immediately brushed off speculation linking him with the vacancy at Premier League rivals Aston Villa, it is believed he is now in contention for the job.
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