It was not immediately clear if the former Juventus and Real Madrid star will lead the team on a temporary or permanent basis - Chinese media speculated that the upcoming China Cup may amount to a job audition.
The 45-year-old former defender will combine the job with being coach of Chinese Super League (CSL) giants Guangzhou Evergrande, making him one of the most powerful figures in Chinese football history.
He takes the post vacated in January by his mentor and compatriot Marcello Lippi, under whom Cannavaro lifted the World Cup in 2006.
The 70-year-old Lippi will be a consultant under the new coaching set-up named for next week's China Cup, the Chinese Football Association (CFA) said.
"The association has carefully made this decision based on comprehensive research of his experience and technical and tactical style, familiarity with Chinese players and other factors," the CFA said.
Cannavaro's first match in charge of the national side will be next Thursday, when the hosts play Thailand in the China Cup, which also involves Uruguay and Uzbekistan.
Cannavaro carries the hopes of a nation that has grand plans but little in the way of footballing success or pedigree, having qualified for the World Cup only once, in 2002.
Xi Jinping, China's football-fan president, has vowed to make the country of 1.4 billion people a heavyweight in the sport and wants to host a World Cup one day.
But China are a lowly 72nd in the FIFA rankings, sandwiched between Macedonia and El Salvador, underlining the scale of the task facing Cannavaro.
Cannavaro knows Chinese football well, having coached Tianjin Quanjian in 2016-2017, before taking the Evergrande job in November 2017.
However, the Italian legend failed to guide Evergrande to an eighth successive CSL title last season.
And he inherits a China squad that was well beaten 3-0 by Iran in the quarter-finals of the Asian Cup at the start of the year and has little in the way of world-class talent.
Five members of Lippi's Asian Cup squad were from Evergrande and the CFA have decided that Cannavaro's familiarity with them can help improve the national team.
There are reservations however about Cannavaro's pedigree.
While a decorated player, his only notable achievement as a coach was getting Tianjin promoted to the CSL and then securing Asian Champions League football for them for the first time.
After Evergrande were beaten 3-1 by unfancied South Koreans Daegu in the AFC Champions League on Tuesday, the Oriental Sports Daily asked: "With the current record of Cannavaro, can Chinese fans trust him?"
Lippi, who quit after the Asian Cup, was widely praised for his spell in charge, despite the exit to Iran and a lack of goals.
There is a general feeling among fans and media that China simply do not have the players to do much better.
Lippi won 12 of his 31 matches in charge.