He takes over from Luigi Di Biagio, the U21 coach, who took charge on an interim basis after Italy crashed out of qualification to Sweden.
Mancini coached Fiorentina, Lazio, Inter Milan, Manchester City, and Galatasaray to titles.
Balotelli now plays with OGC Nice in France, after playing with Liverpool and Manchester City in the United Kingdom, and with AC Milan and Inter Milan in Italy.
Mancini, 53, has signed a two-year contract to coach the Azzurri.
But this will be his first global coaching job.
"Even in hard times, Italy can boast of having players of great quality", Mancini said in comments on the FIGC's social media channels.
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"We need to think about building a team for the coming years, so age will matter".
"I want to thank the commissioner, and the sub-commissioner Michele. The formation and mentality has to be determined by the characteristics of the squad".
"I'm emotional", said Mancini, who won 36 caps for Italy as a player. "I'm proud of this moment", he added.
In Mancini, Italy have a coach with a solid track record as a title victor.
Mancini, a former Lazio and Sampdoria forward, had said coaching the national side would be "extraordinary" and would allow him to fulfil his dream of winning the World Cup. It's a hard time and there's a lot to do. He has not been called to join the national team since November 2014. "I think that every Coach aspires to become CT". "I want to build something for the years to come and bring Italy back to the top".
"The failure to qualify for the World Cup caused mourning and this shows how important it is for our country", he said. All the players here are quality professionals. "I was made to feel they wanted me 100 percent".
He will also prepare Italy for a friendly against France on June 1 in Turin which could be the final worldwide game for goalkeeping legend Gianluigi Buffon.Mancini's first squad will be eagerly awaited and is expected to see the return of Nice forward Mario Balotelli.