Farrell has signed a contract through to January 2016 and he will take charge of England's backs and defence for their tilt at World Cup glory on home soil in 2015.
The former dual international was part of Stuart Lancaster's interim coaching team for this year's RBS 6 Nations, which guided England to second place in the championship.
Farrell initially decided his coaching future lay with Saracens, who had released him on secondment to England, but changed his mind at the end of the Aviva Premiership season.
"I loved every minute of coaching England and working with Stuart and Graham Rowntree and this group of players in the Six Nations and to get the opportunity to do it permanently is a dream," said Farrell.
"I have watched England in South Africa and I am massively excited about the potential that was clearly evident in the three Tests and midweek matches.
"I had seven very special years with Saracens and the club will always have a fond place in my heart. I am grateful for the help they have given me as a player and a coach and I wish everyone involved the best in the future."
Farrell was replaced for England's summer tour of South Africa by Mike Catt, who is still under consideration for a role in an expanded four-man senior coaching team.
"I will continue to review the make-up of the coaching team over the next few weeks to ensure that England has the best structure and personnel," Lancaster said.
"I am delighted that we have got Andy on board. He is a special coach and an individual and the way this team has developed is a testament to the foundations that we laid in the Six Nations.
"Andy, Graham and myself work well together and I am looking forward to carrying on that close relationship over the next three-and-a-half years as we build towards a home World Cup."
The RFU were accused of dragging their heels in their initial failed attempts to recruit Farrell from Saracens on a permanent basis.
Lancaster then turned his attention to New Zealand's World Cup-winning coach Wayne Smith, flying to meet him for dinner in Durban, only to be knocked back.
While Catt was appointed for the summer tour, the RFU clearly never gave up their pursuit of Farrell, Lancaster's number one choice.
Saracens have agreed not to hold Farrell to his contracted six-month notice period.
During their previous discussions with Saracens, the RFU had offered the club £60,000 to cover Farrell's notice period.
RFU chief executive Ian Ritchie said: "I'd like to thank Saracens for the professional manner in which this has been concluded and am very grateful for their agreement to recognise the national interest and to accept Andy's early release from his notice period.
"I know how much Andy enjoyed his years with Saracens and it is a great credit to the club that they have helped him develop so quickly into what we are confident will be a fine international coach.
"This is another positive step forwards for Stuart and the England team as we look to build towards the QBE Internationals (in November) and beyond."
England face Fiji, Australia, South Africa and New Zealand this autumn and must at least retain fourth place in the world rankings to be a top seed at the 2015 World Cup.
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