Royle has signed a two-and-a-half year contract and takes over from George Burley, who was sacked after a poor start to the season.
Ipswich were relegated from the Premiership last term and are currently 17th in the First Division.
"I was approached by other clubs during my sabbatical but I saw this as a chance to do something," said Royle, who left Manchester City in May 2001.
"It is a club with a great reputation for sportsmanship and a chance to be successful.
"I will approach the job in stages, getting away from the bottom, the play-off places and then who knows?"
"There is plenty of ability in there. When a side is losing confidence can become strained but I have not seen any sign that that has happened here."
Royle is aware he will have to generate funds for any new arrivals by selling players.
He says he is 'desperate' to keep the influential Matt Holland but knows the midfielder may move - possibly to Aston Villa - when the transfer window re-opens.
One of Royle's first tasks will be to appease the Ipswich fans who chanted against his prospective appointment in the defeat against Gillingham on Saturday.
Royle put that down to his spell at Ipswich's arch-rivals, Norwich, as a player.
"I just hope they will give me a chance," he said.
"I think the squad here is good enough to reach the play-offs and I don't think there is any problem in the dressing room. Confidence is just a bit low.
"I have players here most of the other managers in Division One would love to have in their team."
Ipswich chairman David Sheepshanks added: "We have enjoyed some success recently but the last 12 months have been very frustrating.
"We can understand supporters venting their frustration, but we are sure Joe can answer them with performances on the pitch."
Royle has persuaded former manager Burley's assistant Tony Mowbray to stay on at the club.
Negotiations are also taking place with Sheffield Wednesday to bring Willie Donachie to the Suffolk outfit's coaching set-up.