Chairman, Daniel Levy, said: "We were extremely reluctant to make a change mid-season, but felt we had to do so in the Club's best interests.
"We have a great squad and we owe them a Head Coach 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 Club a talented coach in Tim Sherwood.
"We believe Tim has both the knowledge and the drive to take the squad forward."
Chris Ramsey, Les Ferdinand and Steffen Freund complete the First Team Coaching set up.