The 55-year-old returns for his second spell at the Calderon having guided the team to seventh in the 2003-4 campaign.
Atletico, the 2010 Europa Cup winners, parted company with Quique Sanchez Flores last month after finishing seventh in La Liga to enter the qualifying stages for the same competition.
Manzano is one of La Liga's most experienced coaches having worked with a number of top-flight clubs over the last decade and led Real Mallorca to their only major trophy triumph in the 2003 King's Cup final.
He is unusual in that he was never a professional player and has a degree in psychology, which has earned him the nickname 'The Professor'.
Manzano took over at Sevilla during last season and steered them to a fifth-placed finish and into the Europa League.