The Major League Soccer club made the announcement early Monday morning. The 50-year-old is to be introduced as the replacement for the departed Jesse Marsch at a news conference Tuesday afternoon at Saputo Stadium.
The Zurich native has been a coach since 1995, including stints with Super League clubs Young Boys Bern and Servette Geneva.
"I am very pleased and proud to be the head coach of the Montreal Impact," Schallibaum said in a statement. "From our very first discussion, I felt confidence with the management.
"I watched a few of the team's games from last season on video. We have a good roster with quality players and I saw a lot on character on the field. I will do all I can to help this team win."
The first player to react was Brazilian midfielder Felipe Martins, who played under Schallibaum in 2010-11 at FC Lugano.
"After 2 years... Will be a pleasure work with you again welcome to Montreal Marco Schallibaum!" Felipe wrote on Twitter.
Impact president Joey Saputo wanted a coach who could speak English and French. Schallibaum speaks those languages as well as Italian and German.
That should come in handy on a club that has former Italian defence great Alessandro Nesta as well as former Serie-A players Marco Di Vaio, Matteo Ferrari, Nelson Rivas and Andrea Pisanu.
The Impact also have former Swiss league players Dennis Iapichino and Felipe.
The Zurich newspaper Tages Anzeiger reported that two other Swiss coaches, Martin Andermatt and Bernard Challandes, interviewed for the job and that former Grasshoppers manager Ciriaco Sforza was considered.
Saputo tweeted last week that the search was down to two candidates.
"We are very happy to announce the hiring of Marco as our new head coach for the club's second season in MLS," Saputo said. "It's the culmination of a long and exhaustive process. From the very first meeting, both parties felt comfortable with one another."
Schallibaum earned 31 caps for Switzerland, scoring one goal. He had nine goals in 379 first division games from 1980 to 1995 with Grasshoppers, Basel, Servette and Luzern, winning three championships.
Marsch, an American in his first head coaching job, guided the Impact to a respectable 13-15-6 record in its inaugural MLS campaign but was gone at the end of the season due to what both sides called philosophical differences.
His tenure was marked by the mid-season influx of European stars like Nesta and Di Vaio that changed the team's personality on and off the field.
Schallibaum will bring a European approach to the job.
"He has a lot of experience at a very high level and has acquired a lot of knowledge over the years," said Impact sporting director Nick De Santis. "Over the different meetings, we felt a real desire on his part to come to MLS and to this club.
"With the rest of the technical staff, we will put him in the best situation possible in order to help him adapt quickly to the reality of North America. He is also very passionate about the game and is an excellent communicator that speaks a number of languages."
Schallibaum has been out of a regular coaching job since his stint with FC Lugano in the Challenge League from 2009 to 2011, but worked as a FIFA coaching instructor in Asia.
His record in 133 Super League games with Young Boys, Servette, Basel, Sion, Schaffhausen and Bellinzona was 39 wins, 58 losses and 36 draws.
The Impact open training camp Jan. 21 in Montreal.