The 59-year-old Chilean has been courted for months by City following impressive spells in Spain with Villarreal and Malaga, which he left this month. He also coached Real Madrid in his nine-year stint in Spain but was fired after one season despite guiding the team to its then-record points total in La Liga.
Pellegrini was appointed exactly a month after Roberto Mancini was fired for failing to capture a trophy in his third full season in charge, an indication of the expectations loaded on City's new manager by its mega-rich owners from Abu Dhabi.
"I am delighted to accept this hugely exciting opportunity," Pellegrini said. "The club has a clear vision for success both on and off the pitch and I am committed to making a significant contribution."
Pellegrini signed a three-year deal, having had to wait to complete the move while contractual issues with Malaga were sorted. British media is reporting his deal is worth 15 million pounds ($23.5 million).
He will take up the role from June 24 and will be managing in his fifth country in 25 years, after previous stints in Chile, Ecuador, Argentina and Spain in which he won six major trophies in total.
"Manuel is a hugely experienced and successful manager with a proven track record," City chairman Khaldoon Al Mubarak said. "We have been greatly impressed throughout the selection process by his philosophy, his attitude and his commitment to the long-term development of Manchester City. I am delighted that he has joined us."
In a way, though, City is taking a gamble.
Pellegrini failed to win a major title during his time in Spain and will be coaching in England for the first time. Many will look at his short stint at Madrid and say he is yet to prove himself at the highest level, that he flopped despite having at his disposal the most expensively assembled squad in the history of the Spanish league.
Look deeper, though, and it is easy to see why City executives Ferran Soriano and Txiki Begiristain — former Barcelona officials charged with developing City's long-term strategy — have turned to a laid-back coach known for his man-management skills and ability to get the best out of players.
Pellegrini, who speaks English, overachieved at Villarreal and Malaga, leading the former to the Champions League semifinals in 2006 and an unprecedented second-place finish in La Liga and the latter to the quarterfinals of Europe's top competition last season. He was also harshly dealt with by the powerbrokers at Madrid — told which players to keep, whom to sell and with some bought without his consent.
Madrid finished its one and only season under Pellegrini with 96 points, a club record at the time, despite being without the injured Cristiano Ronaldo for six weeks. But the team finished second after coming up against the all-conquering Barcelona side of Pep Guardiola.
Having also failed to get Madrid past the last 16 of the Champions League, he was fired and succeeded by Jose Mourinho.
In firing Mancini, City said it wanted a coach who could "develop a holistic approach to all aspects of football at the club," and Pellegrini proved at Villarreal and Malaga that he could bring through youngsters as well as have an eye for talent in the transfer market.
Soriano and Begiristain clearly want City to mimic the model followed so successfully by Barca, where all the teams — from youth to senior level — play with the same style and philosophy. This may be a three-year deal for Pellegrini but City is planning long-term.
"Manuel is a very experienced coach with a recognized ability to get the most out of his players and build cohesive teams," Soriano said. "He shares the club's approach to football and our ambition to achieve on-field success, co-ordinating with the wider football support teams to ensure natural progression from the academy to senior level."
Pellegrini will have a star-studded squad at his disposal that has been supplemented during the past week by the signings of Brazil midfielder Fernandinho and Spain winger Jesus Navas for about 50 million pounds ($78 million), with City acting quickly this off-season after missing out on its main targets last off-season.
That brings its own pressure, with Pellegrini knowing he is unlikely to last beyond next summer without winning the English title or going deep in the Champions League, the tournament in which City has failed to get out of its group in the past two years. Last month, Soriano set the club a target of five trophies in the next five seasons.
Under Pellegrini's stewardship, there is unlikely to be any of the dressing-room bust-ups or training-pitch clashes that scarred Mancini's 3 1/2-year reign and led to increasing disharmony in the squad. A civil engineering graduate — hence his moniker — he is a placid character, typically popular among players and fans and respected in the media.
Pellegrini will appreciate the opportunity he has been given at a time of flux at the top of the Premier League. With no more Alex Ferguson at United and Chelsea also changing managers this off-season, the former Chile defender has a chance to establish City as the leading force in England — just as Mancini had before the Italian messed up.
"Everything is in place for Manchester City to continue to be successful," Pellegrini said, "and I am excited to be able to work with such a talented squad, the executive team and the board to deliver for fans who are renowned for their steadfast support."