The Sbornaya have been seeking a new head coach since Dick Advocaat stepped down from the role following a poor Euro 2012 campaign, in which the team won just one of their three group games to finish below Greece and Czech Republic and exit at the first hurdle.
The Russian FA had drawn up a shortlist that included former Tottenham manager Harry Redknapp and ex-Barcelona boss Pep Guardiola.
Capello, who boasted an impressive 67 per cent win rate while in charge of England, resigned from his Three Lions role in February in protest at John Terry being stripped of the captaincy.
The role with Russia will be the Italian’s eighth managerial job after stints with European giants AC Milan, Real Madrid and Juventus and will see Capello earn a reported €10 million [£7.8m] a year.
Russia will play their first World Cup 2014 qualifier on September 7 when they face Northern Ireland.