The 48-year-old, along with assistant manager Andy Dawson, guided the Iron to the Sky Bet League One play-off semi-finals after taking over from Graham Alexander in March.
The duo led Scunthorpe to a fifth-placed finish following a run of just one defeat in nine games but saw their side beaten by Rotherham over two legs in the play-offs.
Daws, who joined Scunthorpe in 2014, was previously first-team coach, while Dawson steps up from an academy role.
"It's something I've wanted to do for a really long time and I've waited patiently for the opportunity," Daws told the club's official website.
"Fortunately for me, I can do it at a club that I've been at for three and a half years.
"I know what everything's about, I know what the expectations are and I've got somebody alongside me that I've worked with hand-in-hand, on-and-off, for the three-and-a-half-year period as well.
"Now's the time to look forward and to be able to look forward with the title of manager is one that makes me really proud.
"It was absolutely an easy decision. I've done all of the processes of developing as a coach and developing towards management. I can't be any more qualified to do the job. Experience-wise, I've been on the touchline for the best part of 600 games as a coach, so I've got a wealth of experience."
