The 40-year-old Shotton was the fans' favourite to succeed Malcolm Crosby, who stepped down earlier in the week after five games in charge. at the First Division club.
Oxford have agreed nominal compensation with Barnsley, where Shotton was the reserve team manager. He officially takes over after today's home game against Portsmouth, but he is likely to be introduced to the crowd before the match.
The former centre-back captained Oxford during their heady years in the mid-1980s, leading the team to successive championships and then the Milk Cup in 1986.
He has been appointed to fit into a management team which also includes Maurice Evans, who was his manager when he was a player at the Manor, and Crosby, who is staying on as first team coach.
"Malcolm is a winner and his record shows that," Keith Cox, Oxford's managing director, said. "He has proven leadership qualities and that decisiveness we were looking for. I have no doubts that we have got the right man. He will give the club a lift."
Crosby has selected today's side, dropping the teenage striker Jamie Cook. Either Martin Aldridge or Matt Murphy will play up front alongside Nigel Jemson. The midfielder Martin Gray returns after a one-match suspension, but Christophe Remy and Mike Ford are both injured.
Pompey's caretaker-manager, Keith Waldon, may include the Australian striker John Aloisi, who missed the last two matches with an Achilles injury, and the veteran marksman Steve Claridge, who has arrived on loan from Leicester.
Nottingham Forest can extend their lead at the top of the First Division by winning at Queen's Park Rangers today while their main rivals are involved in the FA Cup. Their manager, Dave Bassett, is determind that the adverse publicity regarding charges of transfer "bungs" at the club should not distract his players.
"I don't want to get involved in this and I won't let the players get dragged into it, either," Bassett said. "We've got to concentrate on the job in hand."Reuse content