Pearce's promotion to assistant manager at the start of the season has resulted in a marked improvement in the much-maligned Manchester City defence and he will be looking to continue that during his time in charge.
"I'm manager now and that is where I aim to be next season and for a few seasons after that," said Pearce at a press conference to announce his appointment.
"The bottom line is I will be judged on results. I am doing the job from day one and have an eye on the long term."
Pearce was in charge for 23 games at the City Ground during the 1996/97 season before handing over to Dave Bassett.
The bookmakers have Psycho as 4/1 second favourite to take the job, behind former Coventry and Southampton boss Gordon Strachan.