The 49-year-old Portuguese replaces Stuart Gray, who parted company with the Championship side on 11 June after 18 months in charge at Hillsborough.
Carvalhal has managed extensively in Portugal and also had a spell in charge of Turkish club Besiktas.
"I firmly believe that this appointment will take our team and our club to the next level," said Owls chairman Dejphon Chansiri, who took over in March.
BBC Radio Sheffield says Wednesday want Swindon Town boss Mark Cooper to assist Carvalhal, who will be formally unveiled on Thursday and takes over a side that finished 13th in the second tier last season.
Wednesday have not been in the top flight since being relegated in 1999-2000 and Chansiri has targeted promotion in the next two seasons.
"It is important for our supporters that they watch their team play attractive, aggressive and entertaining football," he added on the club's website.
"Carlos buys in completely to this philosophy and I am confident that his experience, knowledge and ability will herald the start of a successful new era for Sheffield Wednesday."
Cooper, 46, has been in charge of Swindon for the last two seasons and led them to the League One play-off final last season.
Joao Mario, Joao Cunha and Bruno Lage have already been named among Carvalhal's backroom staff.
Sheffield Wednesday have named Carlos Carvalhal as the club's new head coach.