The 42-year-old was appointed acting head coach after predecessor Ashley Giles' move back to Warwickshire was announced in December.
Chapple spent the majority of the 2014 season as player-coach when Peter Moores left to take charge of England, and was first-team coach under Giles.
Former team-mate Mark Chilton, 40, has been named assistant head coach.
"Mark and I are committed to delivering a team that the whole club, the members, the supporters and the county of Lancashire can be proud of," Chapple said.
"We have an incredibly talented and young group of players, and we are hugely excited about the coming season and few years ahead, and what we believe we can achieve."
Former all-rounder Chapple has been with the Old Trafford club since the age of 18 and took 1,373 wickets and scored 11,088 runs in all formats during his playing career.
The highlight of his captaincy came in 2011, when he led the team to their first outright County Championship title in 77 years.
Lancashire begin the 2017 season with a match against Cambridge University before starting their opening Division One Championship game at Essex on 7 April.
Lancashire have named former captain Glen Chapple as their new head coach on a three-year contract.