McClaren, who has had spells as Middlesbrough manager and number two to Sir Alex Ferguson at Manchester United, has been out of the game since being sacked by England in November after failing to secure a place at Euro 2008.
The 47-year-old, who had been linked to the vacant manager's position at Premier League side Blackburn Rovers, also told the BBC that he sought the advice of former PSV Eindhoven and England boss Sir Bobby Robson before accepting the role.
"He also told me that FC Twente is a fantastic club and that I would feel at home.
"I am excited to be working again at a club that fits me well. I am looking forward to this new challenge."
BBC Radio 5 Live's Ian Dennis, who worked alongside McClaren during the Euro 2008 Championship, said: "I sensed his hunger and desire to get back into management.
"He is looking forward to the challenge. It is a shrewd move, an opportunity to rebuild his career away from these shores.
"He has taken advice from Sir Bobby Robson, who did exactly the same. Steve McClaren is fiercely ambitious and cannot wait to get started."
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