The Frenchman, whose playing career included spells at Crystal Palace and Bayern Munich, led Austrian side LASK Linz to the last 16 of the Europa League last season before being sacked in July.
Ismael, 45, replaces Gerhard Struber, who left Barnsley earlier this month to take charge of MLS side New York Red Bulls.
It is a fourth managerial appointment in less than three years for the South Yorkshire club, who are without a league win so far this season.
Ismael also played for Strasbourg and Lens in his home country, and German sides Werder Bremen and Hannover, before beginning his coaching career in the latter’s youth system.
He went on to hold senior coaching roles with Nurnburg, Wolfsburg and Greek outfit Apollon Smyrnis, then led LASK last season.
The new head coach said: “I would like to thank (Barnsley owner) Paul Conway and (CEO) Dane Murphy for the open and productive dialogue that we've had up to this point, and for the great chance that they have given me to manage in English football as the coach of Barnsley FC.
“I feel a great deal of excitement about the new position and the new challenges that it brings, and I can't wait to get to know the team, my coaching staff, everyone who works at the club, and of course the Reds fans at Oakwell too, so that together we can get started and hit the ground running!”
It is a fourth consecutive foreign appointment for Barnsley, who have enjoyed periods of success in recent times with both Daniel Stendel and Struber.
Struber took charge last November with the club bottom of the Championship, and secured their survival on the final day of the season.
After the Austrian’s departure, the club once again led a wide search for a new head coach.
“In Valérien we have a young, ambitious coach who already possesses a wealth of footballing experience across the continent,” said Murphy on the appointment.
“Throughout the recruitment process, he was the standout candidate and his style of play will complement our philosophy.
“Valérien is aware of the quality within our squad and with his guidance, the board believe that he is well suited to continuing our players’ development whilst simultaneously solidifying our position in the Sky Bet Championship.”
Ismael will have a watching brief for Barnsley's trip to Millwall on Saturday, with caretaker boss Adam Murray remaining in charge.