The 52-year-old Labbadia has stepped in after Martin Schmidt resigned from the 2015 German Cup winners on Monday after just five months in the job.
Under Swiss coach Schmidt, Wolfsburg won just five of their last 22 matches to leave them 14th and just a point from the relegation places in the German league table.
Labbadia, who has coached at Stuttgart, Hamburg and Leverkusen in Germany’s top flight, has experience of winning relegation battles.
The former striker kept Hamburg up in 2015-16, but was later dismissed after starting the 2016-17 season with a draw and four straight league defeats.
He has not coached a team since September 2016, when Hamburg sacked him.
“I feel well, rested and am looking forward to working with my new team,” said Labbadia in a statement.
He has a contract until June 2019, but Wolfsburg can ill afford another mistake with the appointment after a series of short tenures.
Schmidt’s predecessor Andries Jonker was sacked last September after six months having in turn replaced Valerien Ismael, who had lasted just four months.
Dieter Hecking, who won 2015 German Cup and reached the Champions League quarter-finals in 2015-16, was head coach from 2012 until his sacking in October 2016.
“Bruno Labbadia is a very experienced coach who has proven his qualities in the Bundesliga several times,” said Wolfsburg’s director of sport Olaf Rebbe.
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