McKinnon was United's number one target to replace Mixu Paatelainen and resigned as Raith Rovers manager on Wednesday night in order to take the job at his home town club.
The former United midfielder told the club's official website: "This is a wonderful opportunity at a club that is close to my heart and I am looking forward to taking on the task of rebuilding the club and developing the talent required to get us where we should be."
The 45-year-old's first task will be to rebuild a squad that is set to be decimated following their relegation from the Ladbrokes Premiership.
United last week announced eight players would be released but also told all but five of their first-team squad that they are free to find new clubs as they bid to cut costs.
McKinnon said: "There are a lot of challenges ahead and it is important that we give ourselves every opportunity to succeed
We will work hard to build a team that the United fans can be proud of."
The former Brechin manager led Raith into the Premiership play-offs in his first season in charge but they suffered a 2-1 aggregate defeat to Hibernian in the quarter-finals.
"I want to thank everyone at Raith Rovers," he said.
"I really enjoyed my time there and I am grateful to them for being so understanding of my desire to become manager of Dundee United
Raith Rovers are a fabulous, proper club whom I wish all the best."
McKinnon - who made 122 appearances in two playing spells at the club - will watch United's final Ladbrokes Premiership game on Saturday at Kilmarnock from the stand as Gordon Young continues with his caretaker role.
Source : PA