The Irishman, who was set to quit the club at the end of last season after a seven year playing career at Portman Road, goes into his first job as a manager at the age of 37.
The youngest manager in the Championship will be backed up by highly rated former academy director Bryan Klug, who will become first team coach. The pair impressed the board and fought off competition from more experienced managers, including Mike Newell and Ian Holloway.
Magilton and Klug have signed two-year deals in their new position, with Tony Hume taking over Klug's previous role as director of the famously successful Ipswich academy.