A move to Argyle is the fourth managerial role of Rooney's coaching career, which has so far failed to live up to his stellar playing days.
"Taking this role at Plymouth Argyle feels like the perfect next step in my career," said Rooney in a club statement.
"This is an opportunity to be part of an exciting project. I look forward to helping to build a squad of players to play expansive football – and to entertain the Green Army."
The 38-year-old was sacked after just 83 days in charge of Birmingham earlier this year.
Rooney won just two of his 15 matches in charge of the Blues, which contributed to their relegation to League One.
He previously had a short spell with former club DC United in Major League Soccer.
But United's all-time record goalscorer did thrive in difficult circumstances during his first job at Derby as the club entered administration.
"Throughout the interview process, Wayne showed himself to be a passionate, intelligent, and knowledgeable candidate with an appetite to prove himself and develop his managerial career," said Plymouth chairman Simon Hallett.
"His ambitions and aims match ours perfectly and we feel he is the perfect candidate to provide the exciting and attacking brand of football that we all like to see and help us achieve the club’s mission."
Plymouth narrowly avoided relegation in their first season back in English football's second tier for 14 years, finishing 21st in the Championship.
