Blues were relegated from the English Premier League last season while Villa, whose manager Gerard Houllier resigned on health grounds, stayed in the top flight.
Hughton, widely praised for his spell as Newcastle boss, saw off competition from the likes of former West Brom manager Roberto di Matteo in the race to take charge of League Cup holders Blues.
A statement on Blues' official website, www.bcfc.com said 52-year-old Hughton, a former Tottenham Hotspur and Republic of Ireland defender, would take charge with "immediate effect".
Hughton added: "I am absolutely delighted.
"To be joining a club of the stature of Birmingham City, with the history it has, is a pleasure. I'm really looking forward to getting to work.
"For as long as I have been in football the name Birmingham City has been right up there and it is what I regard as a real football club with extremely passionate supporters.
"There are certain grounds that you go to where you know you are going to be right up against it because of that passion and how vocal the fans are. St Andrew's has always been one of them and if you speak to most people in football they will say the same."
Hughton continued: "We are going into an extremely competitive Championship and with the players set to return for pre-season training very soon I need to get into the job straight away, and I'm really relishing the opportunity to do exactly that and to meet everyone at the club."
Blues will hope for a repeat of Hughton's achievement in guiding Newcastle out of the Championship and into the Premier League two years ago.
Hughton has been out of football since being axed by Newcastle after a 3-1 defeat at West Brom in December.
He is the first manager to be appointed by Blues owner Carson Yeung since the Hong Kong-based buisnessman took control of the club in the early part of the 2009/10 season.
Hughton spent 13 years as a player at Tottenham and then had spells as coach and assistant-manager at White Hart Lane between 1993 and 2007.
He was appointed first team coach at Newcastle in 2008 and was appointed manager in October 2009.
But, despite guiding them to promotion, Hughton was sacked 14 months later.
Source: AFP
Source: AFP