The former Sunderland and Leeds manager has moved to Home Park from Stoke, where he was assistant to Tony Pulis.
The 54-year-old ex-Everton midfielder replaces Paul Mariner, who failed to prevent the club from relegation from the Championship last season, at the helm of Argyle, although the ex-England striker will stay on at Home Park as head coach.
Argyle chairman Sir Roy Gardner is convinced Reid has the experience and nous required to lead the club back into the Championship at the first attempt this season.
He said: "We said all along that we were seeking a man with proven experience who could help us realise our aspirations and ambitions.
"We want to get back to the Championship and after that, move on. Peter fits that criteria perfectly. He is an international manager and player and domestically he has achieved success in both spheres at the highest echelon.
"He also knows how to mix it outside of the Premier League. He has won lower league titles on the pitch and from the sidelines.
"He is well connected, commands respect and has a depth of knowledge of the game that few of his peers can match."
Mariner and coach John Carver will both stay on to assist Reid and Gardner is certain the trio will have the club on the rise. He said: "As I said last season, Paul and John did a good job without getting the results and Peter's appointment is about improving what we have.
"We now have a management and coaching set-up which boasts unrivalled experience and knowledge. We need to utilise that experience as a launch pad from which to move forward."
Source: PA
Source: PA