Monaco is now three places from last position in Ligue 1, France's top football league, and fired manager Leonardo Jardim on Thursday.
The Frenchman retired from playing in 2014, and since the summer of 2016 has been a coach with the Belgium national team.
Henry's spell at Monaco earned him a brief move to Juventus, before he flourished at Arsenal during a glorious eight-year spell in north London.
"Having started my footballing career with this great club, it seems like fate that I will now begin my managerial career here too".
Henry will take up his new role from October 15.
He said: "Henry is a good choice for Monaco".
Earlier, NAIJ.com had reported how English club Aston Villa were interested in hiring Arsenal legend Thierry Henry as the new manager in fight to return back to the Premier League. The 44-year-old had guided Monaco to the Ligue 1 title just two seasons ago, against all odds over big-spending rivals PSG, and had even overseen a remarkable Champions League run that same season, reaching the semi-finals.
Henry, who began his professional football career with Monaco, will be joined by Arsenal's Under-18 head coach Kwame Ampadu at Stade Louis II. He scored 175 goals in two different spells for Arsenal and is now the Gunners' record goalscorer in the Premier League.
Vadim Vasilyev, Monaco vice president and CEO added: "His knowledge of football, his passion for the game, his high standards and his commitment to our colours make his nomination a reality".
'Thierry is both aware of the task ahead and eager to start his new job.