Di Matteo, 42, who took over from Andre Villas-Boas in March on an interim basis, led Chelsea to a maiden Champions League title and FA Cup glory last season.
The former Chelsea and Italy midfielder said: “I’m obviously delighted to have been appointed as manager and first-team coach.
“We all achieved incredible success last season that made history for this great club. Our aim is to continue building on that and I’m already planning and looking forward to the squad’s return for pre-season.”
Chelsea chief executive Ron Gourlay added: “Roberto’s quality was clear for all to see when he galvanised the squad last season and helped the club make history, and the owner and board are very pleased he will be continuing his good work.”
No London club had ever won the European Cup or Champions League until Chelsea beat Bayern Munich in a penalty shoot-out at the German club’s home ground in May.
Di Matteo, the fourth Italian to manage Chelsea after Gianluca Vialli, Claudio Ranieri and Carlo Ancelotti, now continues an association with the club that began in 1996 when he was signed by Ruud Gullit as a player from Lazio.
Portuguese boss Villas-Boas was the sixth manager sacked by Chelsea owner Roman Abramovich since the Russian billionaire bought the club in 2003, with only Guus Hiddink leaving on his own terms after a spell as interim boss.
Villas-Boas, who arrived from Porto in June 2011, paid the price for a dismal run of results that left Chelsea in fifth place in the Premier League and on the verge of elimination from this season’s Champions League after a 3-1 defeat at Napoli in the last 16 first leg.
But he did bring di Matteo back to Stamford Bridge at the start of last season and the popular Italian was able to repair relationships with senior players such as John Terry and Frank Lampard that had become strained under Villas-Boas.
Di Matteo won his first four games as caretaker coach, including the memorable second-leg turnaround against Napoli.
The Blues lost only three matches after he took charge.
And although Chelsea finished outside the top four places in the Premier League, by winning the Champions League, where they knocked out Benfica and holders Barcelona before defeating Bayern, they still qualified for next season’s edition.
And by winning the Champions League he also helped Abramovich fulfil one of his most cherished dreams as Chelsea owner.
There had been speculation thsat despite di Matteo’s success, he would miss out on becoming full-time boss, with Pep Guardiola linked with the vacancy at Stamford Bridge following his exit from Barcelona.
But Gourlay said di Matteo was the right man and had already had an input into the arrival of recent signings such as Edin Hazard.
“We will be working closely with Roberto in the weeks ahead, some exciting signings have already been made and Roberto has had input into those.”
Before the Champions League final, di Matteo guided Chelsea to a 2-1 FA Cup final win over Liverpool.
Victory at Wembley was the latest chapter in di Matteo’s FA Cup history with Chelsea.
He ended his first season at Stamford Bridge by scoring in the FA Cup final as Chelsea won their first major trophy for 26 years.
He also found the net in a League Cup final win and another FA Cup final before injury forced his retirement at the age of 31, with di Matteo having scored 26 goals in 175 Chelsea appearances.
Di Matteo became a manager for the first time at third-tier MK Dons in 2008. A year later he moved up a division to West Bromwich Albion, whom he then took into the Premier League at the first attempt before leaving the Midlands club in February 2011.