The PCB said in a statement that the coaching committee has unanimously recommended Mushtaq's name for the job and chairman Najam Sethi has stamped his approval.
Pakistan's former off-spinner Saqlain Mushtaq, who was also in fray for the job, lost out to Mushtaq as the committee was in favour of the leg-spinner.
Mushtaq's appointment was expected after he had informed the new head coach of the England team, Peter Moores that he will not be available for the English team due to his Pakistan commitments.
"It is a great honour to be given this two year contract and I will also be working at the national cricket academy," Mushtaq said.
The wily leg-spinner, who took 185 Test and 161 ODI wickets, said his main job would be to unite the team management and players as one unit.
"If the team management gels with the players, the team will always produce good results. If required I will also help out with the batsmen," he added.
Waqar, Mushtaq and Moin have all played together for a number of years in the national team and were top rated players in their heydays.
The PCB is also said to be seriously considering Zimbabwean Grant Flower for the job of batting coach.
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