The 45-year-old has had unmemorable spells in charge at Barnsley and Sheffield United, but is remembered more for his playing career.
As a centre-back, Spackman played for Chelsea, Liverpool and Rangers.
He replaces David Tuttle, who left in April, as Lions boss.
Chairman Stewart Till said: "We are delighted that Nigel has agreed to join us as manager. It has been an intensive process in which we have interviewed a number of excellent candidates.
"He clearly possesses the requisite vision, commitment, footballing intelligence and has a plan to restore Millwall to our rightful position as, at the least, one of the leading Championship clubs."