The 41-year-old Frenchman, who had been Belgium’s assistant manager, began his professional career at Monaco and helped them win Ligue 1 in 1997.
The club are third from bottom in Ligue 1 and sacked manager Leonardo Jardim on Thursday.
“It seems like fate that I will begin my managerial career here,” said Henry, who is Arsenal’s record goalscorer.
The former Juventus, Barcelona and New York Red Bulls player was linked with Aston Villa in recent weeks and said he received some “very attractive offers” over the last few months.
“Monaco will always be close to my heart,” he added. “I’m incredibly excited to be given this opportunity but now the hard work must begin.”
Monaco have won just once all season in all competitions. In Ligue 1 they have six points from nine games with five defeats and they have lost both games in the Champions League.
Henry’s first game in charge will be against Strasbourg in the league on 20 October, before a Champions League tie with Club Brugge four days later.
The trouble with Monaco runs deeper than just appointing a manager. Monaco sold all their players:Bernado Silva, Fabinho,Benjamin Mendy, and above all else Mbappe yet they didn’t buy any players. How did they expect to be competitive?
Monaco sold the best players it had and never cared to replace them the likes of
*Mbappe
*Thomas Lemar
*Benjamin Mendy
*Bernado Silva
*Fabinho
*Bakayoko
This Henry appointment will end in tears both for him and monaco. You don’t need a novice manager for a club that’s in turmoil. If he really needs a management job should have taken the route Gerrard and lampard took. Start with a lower league club where their is not much pressure and scrutiny. Then once your are confident and can handle th weight of expectations then you can take a bigger job.