Allofs joins the club on a four-year deal after 13 years at Bremen following the dismissal of former 'Wolves' manager Felix Magath.
"This move marks the end of three important years for me. I received many offers during this time, but none of them caught my attention. Now the time has come to take on a new challenge," explained Allofs.
Concerning potential successors at Bremen, chairman Willi Lemke said: "We've put together a list of potential candidates, but we won't be naming names. We're sure we'll find the right solution for the good of Bremen."
Title and two cups
Allofs joined Bremen in 1999 and, together with long-term coach and colleague Thomas Schaaf, oversaw a domestic double in 2004 and subsequent UEFA Champions League and Europa League appearances. Bremen also won the DFB Cup in 2009 and reached the final of that year's UEFA Cup under Allofs' tenure.
At his official unveiling on Thursday morning, Allofs once again emphasised that a fresh challenge after more than a decade with Werder had been one of his underlying motivations in moving south-east.
"This is it"
"It wasn't easy to leave after such a long time, but when the offer came, I thought: 'This is it. That's a role that I'd enjoy doing'," the 55-year-old said. "Here we have a team with great potential that shouldn't be in the lower half of the table. We've got a lot of work to do, but after all, that's part of the appeal of this job."