The 55-year-old former Tottenham boss has agreed an initial two-year contract at Craven Cottage with the option of a further 12 months.
"I would like to welcome Martin Jol to Fulham. He understands my vision for the club, and believes in what we are striving to achieve here," Al Fayed said on the club's official website, www.fulhamfc.com.
The Dutchman replaces Mark Hughes, who resigned as Fulham manager last Thursday after one season at the helm having been appointed successor to Roy Hodgson, who left for a brief spell as Liverpool boss having taken the west London club to the Europa League final.
Now with a third head coach in as many seasons, Fulham supremo Al Fayed is confident Jol will bring some stability to the Cottage.
He added: "I know that he will dedicate himself to helping us move forward, and is with us for the long term, to help us build and progress. We have enjoyed three incredibly successful years, and my hopes and dreams for this club are for that journey to continue.
"I know that with his wealth of experience and success, Martin is the right man to help us do this."
Jol - sacked by Spurs in 2007 - was linked with the Fulham role last year after Hodgson's departure, but Ajax refused to release him from his post as head coach at the Amsterdam ArenA.
He has been out of work since quitting the Dutch club last December and is excited at the prospect of returning to the Barclays Premier League.
"I am very happy to join Fulham, a wonderful traditional club," Jol said. "It is a club with good, solid foundations and a great fan base. I am looking forward to being part of the Fulham family and thank the chairman for the trust he's shown in me."