After fans threatened to boycott Real Betis games, the LaLiga club sacked coach Gus Poyet.
Poyet, the former Sunderland and AEK Athens boss, had overseen four losses in Betis's past five games.
The form slump had seen the club fall to 14th in LaLiga and supporters vowing to boycott games until Poyet's dismissal, which arrived on Saturday.
The Uruguayan had signed a two-year deal with Betis in May.
Sanchez, whose last job was at the helm of Olypiacos, played for Madrid during the 1990s and was an eight-time Spain international.
His first game in charge will be a clash at home to Las Palmas on Friday.
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