The former technical co-ordinator of the north London club has overseen first team duties following Andre Villas-Boas' dismissal last week.
After steering the club to a 3-2 win over Southampton, Sherwood has been awarded a contract that will run until the conclusion of the 2014/15 campaign.
"We were extremely reluctant to make a change mid-season, but felt we had to do so in the club's best interest," chairman Daniel Levy said in a statement through the club's official website.
"We have a great squad and we owe them a head xoach who will bring out the best in them and allow them to flourish and enjoy a strong, exciting finish to the season.
"We are in the fortunate position of having within our xlub a talented coach in Tim Sherwood.
"We believe Tim has both the knowledge and the drive to take the squad forward."
Chris Ramsey and Les Ferdinand, who worked alongside Sherwood with the club's development side, will also continue their roles with the first team along with Villas-Boas' former assistant manager Steffen Freund.
Sherwood lost his first game in charge as interim boss as Spurs were dumped out of the Capital One Cup at the quarter final stage by West Ham United last week.
Despite the loss, the former midfielder remained one of the front runners for the job on a permanent basis and gave his chances a boost my overseeing a win over Southampton at the weekend, notable for his decision to recall Emmanuel Adebayor to the first team. It was one that paid dividends, as the striker who had been exiled by Villas-Boas struck his second and third goals in two appearances under Sherwood.
Sherwood, 44, signed for Tottenham in 1999 and spent four years at the club, before returning as part of the coaching staff under Harry Redknapp in 2008.
Fabio Capello, Louis van Gaal, Guus Hiddink and Frank de Boer were just a few of many names linked with the job at White Hart Lane over the past seven days, but with many already fully committed to roles at both international and club level, Spurs have opted to hand Sherwood the role on a permanent basis.