The choice of the former artistic director of the National Theatre is part of an ambitious scheme to reinvigorate the theatre, which has barely broken even in recent years and has not had an artistic director since Jonathan Miller left in 1990.
Andrew Leigh, general manager, said the intention was to re-create the Old Vic's "great days" of the Twenties to the Forties, when the south- east London theatre was world-famous for its classical repertoire.
Later the Old Vic company failed, and after the National Theatre moved into its own premises in 1976 the theatre's artistic policy had been unfocused, he admitted.
Announcing the appointment yesterday, David Mirvish, the theatre's Canadian owner, said the idea of a repertory company returning to the Old Vic was so "dangerous" that Sir Peter was the only person he would have trusted to do it.
"Sir Peter has run two out of the three great theatres in this country. I am proud that he is joining us to tackle the final theatre in the triumvirate," he said.
Sir Peter, 65, said the Peter Hall Company would perform one of the most challenging repertoires in the country. It is to stage five classics and five new plays throughout the first season, giving 10 performances a week, and opening every day of the week.
The director, who founded the Royal Shakespeare Company in 1960, has yet to recruit the 15 company members. He said that he had put out feelers but had not yet "landed any catches".
He aims to attract large audiences to his season, which opens on 4 March next year and ends on 6 December, by undercutting ticket prices in the West End, which Trevor Nunn described yesterday as in a state of malaise.
Regular theatre-goers will be offered a subscription scheme with low prices.
Sir Peter will direct four out of five of the classics, while Dominic Dromgoole, former artistic director of the Bush Theatre in west London, will have artistic direction of the five new plays, aimed at attracting younger audiences. Details of the productions will be announced in the autumn.