Blanc previously coached Bordeaux, France, Paris St Germain and most recently Qatar's Al-Rayyan.
Blanc, nicknamed 'the President' in his years partnering Marcel Desailly in the France central defence and who was at the heart of Les Bleus' 1998 World Cup-winning campaign, has not coached in France since being dismissed by PSG after a domestic treble in 2016.
He is taking the reins of an OL team who have been struggling in Ligue 1 this season, having picked up only one point in their last five matches.
"In view of the disappointing results obtained at the beginning of the season, which fall far short of the expectations and objectives set, Olympique Lyonnais has informed Peter Bosz, coach of the professional team... that he was being suspended pending his dismissal," OL said in a statement.
"An internal reflection was carried out in order to find the necessary levers to allow the team to start again on solid bases in order to be in adequacy with the ambitions of OL this season.
"Following this process... Olympique Lyonnais have decided to appoint Laurent Blanc as head coach of the professional team for two seasons, until June 30, 2024."
Bosz joined from Bayer Leverkusen last season but was never close to helping Lyon qualify for the Champions League as they finished a disappointing eighth in Ligue 1.
They currently lie in ninth place, 12 points behind leaders PSG.
