Di Matteo replaced fired manager Andre Villas-Boas for the final 11 weeks of the season on an interim basis, revitalizing a divided team and turning them into FA Cup and European champions.
After weeks of uncertainty over his long-term future, the 42-year-old former Chelsea midfielder returned to Stamford Bridge on Wednesday to sign a deal that gives him the job on a permanent basis.
"Roberto's quality was clear for all to see when he galvanized the squad last season and helped the club make history," chief executive Ron Gourlay said.
He said Di Matteo's success "made him the clear choice when it came to selecting the person to take us forward in the seasons to come."
With Chelsea floundering under Villas-Boas, Di Matteo gained the players' trust and confidence and moulded them into a formidable double-winning unit. The season ended with the Blues beating Bayern Munich in a penalty shootout in the Champions League final, giving Russian owner Roman Abramovich the title he has craved for so long.
"Although he has set the bar very high in the short time he has been in charge, we know that Roberto is the right man to lead Chelsea onto further success," Gourlay said.
The Blues finished outside the top four (sixth) in the Premier League, but the victory over Bayern guaranteed them Champions League football next season.
"I'm obviously delighted to have been appointed as manager and first-team coach," Di Matteo said. "We all achieved incredible success last season that made history for this great club. Our aim is to continue building on that and I'm already planning and looking forward to the squad's return for pre-season."
Di Matteo is the fourth Italian to manage Chelsea. He started at the club in 1996 when he signed as a player from Lazio.
After managerial stints at MK Dons and West Bromwich Albion, Di Matteo returned to Chelsea as assistant first-team coach under Villas-Boas at the start of last season.