The 30-year-old has agreed to leave his post as assistant to Rafa Benitez at Newcastle United to sign a three-and-a-half-year deal.
He will be in the dug-out for Saturday’s Premiership match at Rangers and replaces Robbie Neilson, who left last week after the two sides met in Edinburgh.
Neilson has left to join English League One side MK Dons, along with assistant Stevie Crawford.
Cathro had been an assistant coach at St James’ Park since June 2015, serving first under Steve McClaren.
Hearts chairman Ann Budge said: “We are delighted to have secured the services of Ian Cathro and are confident he is the ideal candidate to take our club forward.
“He is widely regarded as one of the brightest young coaches in the game and has amassed a great deal of experience both at home and abroad.
“He may only be 30 years of age but we are convinced that he has all the tools required to be a successful head coach.”
He worked as youth coach at Dundee United with Hearts director of football Craig Levein and then moved to Portugal with Rio Ave, where he was assistant to manager Nuno Espirito Santo.
The pair switched to Valencia, leading the Spanish club to a fourth place finish in La Liga before Cathro returned to Britain.
Hearts are thought to be pursuing Northern Ireland assistant manager Austin McPhee to join the coaching staff.