Just last year Aloisi was part of Heart's playing squad but, after impressing as the club's National Youth League coach, the 36-year-old pipped Ante Milicic to succeed Dutchman John van't Schip.
Aloisi, the only Australian to have played in the English Premier League, Spain's La Liga and Italy's Serie A, has signed a three-year deal.
"I'm honoured and delighted to have been appointed head coach of Melbourne Heart FC," Aloisi said.
"When I retired here just over a year ago I didn't expect to be the head coach within a year.
"I enjoyed the experience with the youth team and when this came along I thought it was a great opportunity to get into the head coaching role."
"The club is well positioned to succeed, with an exciting young core at the heart of our team, and I'm confident we will be able to build on last season's success over the next few years."
Aloisi said Heart has re-signed 15 players for next season and hopes to have the squad finalised by the time pre-season training begins in June.
Greater consistency was pin-pointed by Aloisi, when asked what the team needed to improve on, with the hunt for a 'number 6' to control the midfield a key during the recruitment process.
"We need to make sure the foreigners we bring in are the right ones in key positions and the local players are the right ones too," Aloisi said.
Aloisi said he wanted Milicic, who is contracted to Heart for next season, to continue as assistant coach and confirmed that the club will add to its coaching staff.
"I want him to stay. We're good friends off the pitch too," Aloisi said.
"Ante is an integral part of this club."
While admitting Milicic, 38, was disappointed miss out, Heart Chairman Peter Sidwell believes Aloisi is the right man for the job.
"John's elevation to the role of head coach marks the opening of a significant chapter in our club’s history as we look to build upon the foundations laid throughout the first two seasons of our existence and establish ourselves as a force in the Hyundai A-League.
"The Melbourne Heart way is to provide pathways and develop from within, and John's appointment to the head coaching role is certainly reflective of that philosophy.
"We considered a number of outstanding candidates both externally and internally, but we ultimately reached a conclusion John was the right man to lead us forward as we continue our development as a club."
Sidwell also announced that Kappa will be Heart's apparel sponsor for the next two seasons.