Former Manchester United and England defender Neville replaces Gio Savarese, who was sacked by the club in August after six seasons.
Neville was axed by Miami in June with the club languishing at the foot of the Eastern Conference, shortly before the arrival of Lionel Messi.
"I am massively excited about the challenge ahead, and from the very first moment I met the staff I knew it was the right opportunity for me, the right club for me and the right city for me," Neville said in a statement.
Timbers' general manager Ned Grabavoy said Neville was the "right person to lead this team forward."
"His leadership qualities, diverse experience as a coach, and ambition to evolve made him a terrific fit here with us in Portland," Grabavoy said.
Neville moved into coaching after a 19-year playing career spent mostly with Manchester United and Everton.
He led England's women to the World Cup semifinals in 2019 where they lost to eventual champions the United States.
Recently he has worked in the back-room staff of the Canadian men's national team as an assistant coach.